A Look at International Pension Reform Efforts
As we think about Social Security reform in the United States, it makes sense to look at what other countries are doing to reform their public pension systems. Facing serious fiscal crises, a number of countries have begun making serious changes to their public pension changes, recently. Many countries are well ahead of the curve, having made their programs sustainable years ago. Others have had to make changes recently, in light of new fiscal and economic realities.
Just as the United States is aging, so too is the rest of the world. In Europe, for example, the worker-to-retiree ratio is expected to decline from 4-to-1 to 2-1 in the next couple of decades. The generosity of many of the European benefits (including lower retirement ages) makes their problems more dire than ours in many cases.
Yet whereas the United States has refused to act, the same is not true in the rest of the world.
In July of this year, the French government adopted a bill that would raise the retirement age from 60 to 62 by 2018, with President Nicolas Sarkozy citing the recent Greek debt crisis and France’s own spiraling national debt and deficit for the bill’s creation and implementation. Without the change in the retirement age, France would have faced a pension funding shortfall of between 72 and 115 billion euros by 2050—in the most conservative estimation.
As part of its strict new budget plan, the UK government also hopes to raise its retirement age as well—from its current level at 65 to 68 for men and 60 to 68 for women.
In the wake of its fiscal crisis, Greece also plans to raise the retirement age and end the long-established custom of automatic bonuses for retirees given at Christmas, Easter, and during the summertime, according to the austerity plan drawn up by the IMF. Spain, too, will be raising its retirement age—from 65 to 67—and has proposed an end to inflation-linked monthly pension increases.
The raising of the retirement age seems to be a trend in nations' most recent efforts to get their pension programs on solid fiscal footing, yet prior reforms have included increased marginal tax rates and employee contributions to federal pension trust funds and decreased retiree benefits--but the problem has become so great that relying upon these initiatives alone would theoretically require, according to the OECD, contributions of over 100 percent of some EU citizens' wages in the next few decades.
European nations’ unsustainable fiscal paths have forced them to take a critical look at their pension programs, and the seemingly plentiful savings that could be found in scaling them back has proven a temptation impossible to resist despite political difficulties.
Unfortunately, the United States is a laggard in the area of Social Security reform. It's time to catch up.