Social security is the providence of economic aide to the deserving people of the society e.g. the old, poor and unemployed (due to disability or old age), and even in some cases the dependant children in a family. “Social security primarily refers to social welfare service concerned with social protection, or protection against socially recognized conditions.” (Social Security Wikipedia) In some countries government sponsored social security schemes are mandatory and “pensions” are provided to all the unemployed or retired old people in the country. It is sometimes deducted as a part of tax from the incomes of people and then paid as pension upon retirement. Pensions or other social security schemes may range from a mere financial help to the providence of homes, old age services and free medical care depending on the country and the policies in consideration.
“Public retirement programs are important both to individuals and to national economies. They are the principal source of income of the aged in most industrialized countries […]” (Rosa and Catellino p.2) However, in most recent times the graying populations in various countries seem to pose myriad problems for their respective governments. The crisis faced is providing extensive social security services which have evolved over the years to a huge population of old people on the expense of the taxes of the employed younger generation. This issue has threatened the social security system of many nations and various proposals regarding the preservation of social security are now under consideration.
Different ways of preserving Social Security in the future
At present many government sponsored social security schemes are funded by the “pay as you earn” policy and hence the amount paid by the individual himself/herself is used to provide social security services upon retirement. However, the inclusions of whole families in social security programs, especially those sponsored by the government have caused complications. Government has at times no choice but to use the social security funds on alternative issues other than the providence of social security. According to analysts, “the government used payroll tax surpluses to avoid making tough choices in addressing deficits in rest of the budget.” (Penny “Best way to save social security”)
This can cause difficulties in continuing the social security system in the future. Since social security is the basic earning of the old. Disabled and many unemployed women, its continuance holds immense significance for the citizens of a country. Quite a few ways of preserving social security have been proposed and their pros and cons have been discussed by economists and concerned officials in various countries. Some of these possibilities of saving social security are being discussed here.
Privatization of Social Security
Privatizing social security involves the transition from an unfunded pay-as-you-earn system to the development of a mandatory system of privatized saving accounts. It is expected that this would not only improve the overall returns to the owners of these accounts as compared to the conventional system but also help to boost the economy. As it is becoming increasingly difficult to maintain a social security-keeping in view the phenomenon of graying populations- privatizing social security will open doors to better opportunities for both the consumers or social security receivers and the government by removing much of its economic burden.
Privatization of social security system is being considered seriously for implementation by many countries around the globe including the United States. The main reason for considering this step is the successful outcome of privatizing social security in Chile. “Chile’s privatization coincided with spectacular takeoff of its economy and has led some observers to suggest that privatizing social security was the key to Chile’s economic growth.” (Feldstein p.265) The benefits of privatizing social security can be fully understood by understanding how the social security system lays a heavy burden on the governments economy since it not only depends on the taxes paid by the current generation but also by the future generation.
Social security is actually dependant on the taxes paid by the future generations for the current generation because the taxes paid by the current generation are not saved in fixed accounts for their own use (as discussed above) but used by the government according to the demand of the situations hence the system is subject to changes in case conditions in future alter drastically. This system is depends not only on future tax payroll revenues but also labor market distortions.
In addition, the current system does not invest the taxes or funds collected in investment plans but merely pay them out on regular basis. Privatization will not only help reduce the taxes but also make available the possibility of investing the individual funds for social security overall improving the output received by the people and improving the condition of the economy. “Social Security drains capital from the poorest areas of the country, leaving less money available for new investment and job creation. Privatization would increase national savings and provide a new pool of capital for investment that would be particularly beneficial to the poor.” (Tanner “Big boost for the poor”)
Safe deposit or lock box deposit
Safe deposit or “lock box deposit” is another way of saving the social security funds from being spent on other issues. The lock box deposit is being considered mainly in the USA and in a few other countries. In this proposed method of preserving the social security for the future, the social security funds would be kept completely separate from other funds and the expenditure of the social security funds on other issues will be prevented. Instead the government would be able to invest these funds in the stock market, hence being able to receive profit on these funds. This will not only secure the retirement pension plans but also help in ameliorating the economic conditions. In this way, the social security will not be privatized, stay in governmental control and both the people and the government will be benefited.
Saving the surplus in this method would help pay national economic debt and enable the economy to set on a new path of progress. However, it is very difficult to ensure that the government policy makers would not be inclined towards using these funds on alternative issues depending on the situations which confront them. “It’s very hard for government to prevent the spending of Social Security money because it’s the government itself that wants to do the spending.” (Penny “Best way of saving social security”)
Many governments facing the problems of retirement pension plans have proposed increasing taxes. An increase in the tax payrolls may seem to be a temporary solution to the long term social security problem. “There are, however, good reasons not to close the Social Security shortfall through an immediate increase in the payroll tax. Because of growing wage inequality, the real wages of most of the workforce have actually declined over the last two decades. Workers who have been experiencing declining before-tax wages are ill-situated to cope with a new tax increase.” (Baker “Saving Social Security in Three Steps”) Increasing the taxes would not only put burden on the current employed people but also provide only a very short lived solution. In the long run a further increase in the taxes would be required and hence the raising taxes alone would not be a suitable or feasible situation.
Personal Saving Accounts
If the people are given more control over their own funds then these funds could be protected from being spent by the government on alternatives. In order to give this control to the people, maintenance of personal accounts under government supervision seems a feasible option. According to this scheme people’s funds which would in future be used for the purpose of providing retirement pensions and other social welfare benefits, would be deposited in separate or individual accounts. “Assets set aside to fund future obligations are most likely to be insulated by a system in which ownership and control rest with individuals.” (Penny “Best Way to Save Social Security”)
The funds in these personal accounts could be used in investments according to the desires and demands of the individual. This would transfer greater control to the individual and secure a source for diverse situations. “A system of personal retirement accounts–privately managed, owned by workers, and fully funded with a portion of their payroll taxes–would have other benefits as well. For example, such a system would create a direct link between the taxes workers pay and the benefits they can expect to receive, that link being the market rate of interest.” (Weaver “Personal Security Accounts”) This would be a very beneficial solution. People would have a clear picture of what they will get in the future when they retire. The government’s problem of trying to keep the retirement funds and other national funds would be solved and un necessary increase in tax could be prevented.
Social Security or more specifically speaking retirement pension plans are very important for those who are solely depending on these funds in the absence of an employment. A person may utilize these funds upon retirement in old age or if unable to pursue a job in case of a disability. Hence social security holds immense importance since it is the main source of sustenance for the old and the disabled. It is the duty of the government to provide social security. When it claims taxes from its people, it is also responsible for providing retirement pension and social welfare system for the citizens.
Since in recent times economic problems are rising combined with the problem of graying population, more old people have to be provided with social security at present as compared to the past. Therefore, effective steps have to be taken to ensure that social security system continues in the future as well. Privatization, setting up of personal security accounts or setting aside the taxes and investing them in the stock market are all various options which different governments can adopt according to the situations prevalent in their countries. No matter which option may be chosen from these possible solutions or others which may be proposed in the future, the most important aspect is to continue the system of social security without putting an extra burden on a country’s economy. This is very well possible if a systematic approach is adopted. Social security is a right of the citizens of a country especially when they have honestly paid their taxes. Hence the governments should take every possible measure to ensure that their future is secured.