As part of my recent convalescence, I had the privilege to attend Oregon’s Gathering of the Eagles event at the bucolic Ames Ranch, which featured Herman Cain as its main speaker. Besides his stem-winding speeches which drew the rapt attention of the audience, I was able to spend a few minutes in personal conversation with the gentleman, and he is as impressive in a quiet one-on-one setting as he is on the stump. I won’t elaborate on the particulars of his speech or his responses to questions from the audience, but he is one of the rare breed of politician who actually addresses a topic specifically. It was good to hear his views of a few days ago, as he has refined and expanded his answers in several areas.
My purpose here is to register my delight that, on the topic of retirement accounts to address the solvency of the Social Security system, he brought up the Chile Plan. He is the first politician I’ve heard to mention it since George W Bush, during his attempt to incorporate Chile into NAFTA as a result of that country’s miraculous economic turnaround. This is a brief explanation of the plan by José Piñera, Chile’s former Secretary of Labour and Social Security, writing in 2004, and a few excerpts are worth noting:
Chile's Social Security Reform Act of 1980 allowed current workers to opt out of the government-run pension system financed by a payroll tax and instead contribute to a personal retirement account. What determines those workers' retirement benefit is the amount of money accumulated in their personal account during their working years. Neither the workers nor the employers pay a payroll tax. Nor do these workers collect a government-financed benefit. Instead, 10 percent of their pretax wage is deposited monthly into a personal account.
Workers may voluntarily contribute up to an additional 10 percent a month in pretax wages. The invested amounts grow tax-free, and the workers pay tax on this money only when they withdraw it for retirement. . . .
Workers may choose any one of several competing private pension fund companies to manage their accounts. Those companies can engage in no other activities and are subject to strict supervision by a government agency. Older workers have to own mutual funds concentrated in short-term fixed-income securities, while young workers can have most of their funds in stocks. The law encourages a diversified portfolio, with no obligation to invest in government bonds or any other security. . . .
The article is detailed and very readable. If you have any interest in retirement whatsoever, particularly as it regards Social Security and the still-looming crisis in that department, then read the whole thing.Since the system started on May 1, 1981, the average real return on the personal accounts has been 10 percent a year. The pension funds have now accumulated resources equivalent to 70 percent of gross domestic product, a pool of savings that has helped finance economic growth and spurred the development of liquid long-term domestic capital market.
Since that time, similar plans have been implemented in Australia to similar initial success.
Privatization has been a huge success in Australia: Workers will be able to retire with higher incomes, the government has significantly reduced long-term budget pressures, and the economy will benefit by a dramatic increase in savings. Like other nations around the world, Australia recognized in the 1980s that replacing the government's tax-and-transfer old-age retirement scheme with a private retirement system based on mandatory savings was a win-win proposition. Because Australia is in many ways politically and demographically similar to the United States, American policymakers would be well advised to learn the lessons of Australia's successful reforms.
A plan is slowly getting started in the UK despite strong political opposition, now that the British have received permission from the European Commission.
My sainted brother has had opportunities to visit Chile in the last several years (yes, this is an anecdote, but germane) and finds that the populace are wildly enthusiastic about the plan, not least because of its great success. Perhaps if the press here were to give the subject greater shrift, it would be possible for the American public to better judge, but I dare not hold my breath in anticipation of the MSM's equanimity. We have to rely on Mr Cain to carry that fire for now.
Mr Cain is well aware of the ‘privitisation’ campaign waged against the idea by the Democrats during the Bush tenure, and calls his plan a matter of ‘personalisation’ instead. Those of you regular readers undoubtedly recognize that my interest lies primarily with the possibility that Rick Perry might run, and I feel that Mr Cain’s chances for the nomination are less than likely, but he is a dynamic contender with dynamic ideas, and the conservatives need to hear more from him.