A Quick Guide to the Public Pension Crisis

The NCPA has written numerous publications on the unfunded liabilities of Social Security and possible reforms.   We have also addressed unfunded liabilities of state and local public pensions.   But one of my readers alerted me to her infographic that quite nicely sums up the Social Security and states’ pension crises, for those with no time to read long and arduous reports.  What is particularly interesting in the infographic is the list of “Countries with the Strongest Pension Programs.”  Countries that rank ahead of the U.S.A., such as Denmark, the Netherlands, Chile, Sweden, Switzerland, and Norway all have mandatory private pensions that either replace to some degree or supplement public pension systems (see this report from the Institute for the Study of Labor for more details on other countries’ pension systems).  So why is it so difficult for the United States to transition to such a system?


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  1. Veronica R says:

    I wonder the same thing, how is it possible that the country that exemplifies capitalism and private enterprise, hasn’t been able to transition into a private program that will solve many of the issues that are threatening the social security system. It is better to make that transition now, rather than wait until it’s too late to act.

  2. Gabriel M says:

    One of the important reasons why the US hasn’t changed into a private security system is the fact that the baby boomers are nearing retirement. Because they are a significant portion of the population, and are big contributors, the government fears that this transfer will prevent retirees from receiving their pension.

    • Frank K says:

      You have to consider the political implications of proposing this transition. Because it creates uncertainty, baby boomer and retirees will oppose it (especially because they will be gone by the time the social security runs out of money). Keeping in mind that these two age groups are essential to win any election, both parties will be reluctant of doing so.

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  3. Pam says:

    European countries have a worse dependency ratio than we do, yet many have reformed their pension systems. This does not mean changing the current benefit formula for those who are at or nearing retirement. But such a reform could apply to younger workers, whom the majority believe that SS won’t be there for them anyway.

    • Lucas A says:

      I agree with you, going forward it is the best alternative especially for the young population, for whom the system won’t have enough funds to cover them when they reach retirement age. The problem is that it is hard for the government to legislate solely for people who are not avid voters, especially when the generation is characterized by having left-winged tendencies.

  4. Roman F says:

    It is also important to keep in mind what happened in Argentina. The country shifted to a private pension system in 1994 under President Carlos Menem and kept the national system in place as an alternative. Yet, the system didn’t work as expected and by 2008, it was underfunded as well. This forced the government of Cristina Fernandez to nationalize these private pensions. Many suffered from significant losses due to these transactions. What I am trying to explain is that having a private pension plan, doesn’t translate into a sustainable system.

    • Pam says:

      Argentina is a poor example to use. While the system was not completely private (it still had a minimum government subsidy component), the private contributions were optional, not required. In fact, one of the privately managed funds was experiencing a return of more than 13 percent since 1994. The reason for the “nationalization” of people’s pensions was not due to the pensions themselves, but so the Argentine government could pay down debt. This is the equivalent of the federal government taking 401(k) accounts and using them to pay government debt (can you say criminal?). These pensioners will get paid back, but at a far lower rate of return.

      Argentina is not in the top 15 on the infograph list, but other countries that had mandatory contributions into private accounts are.

      • Roman F says:

        Yes, I know Argentina is a bad example; the economy of the country is in crumbles and is not giving hope of ever rebuilding. I was trying to refer to the criminal decision the government made in order to help the administration. I wanted to point out that having private pensions has risks and even though it’s private, is subject to the will of the government. It must be very tempting seeing the pot of gold there and one needing the money. Back in 1994, no one thought that the government would intervene with their retirement funds, yet they did. Take Chile as an example then. The private pension plans came under Pinochet’s dictatorship and the Chicago Boys economic plans. It is one of the best systems in the world (8th according to the infographic) and the economy is one of the strongest in Latin America. Yet, the country is falling back to its left winged ideals and elected Michelle Bachelet again. This time she run for a more socialist agenda and promised significant reforms. It wouldn’t surprise me that if the economic times change in Chile and the country suffer from a downturn; a government from the left would try to nationalize the pensions. In the end Argentina and Chile are very similar countries and have experienced a similar history.

        I am not against private pensions, I believe they are a great option for this country, yet we cannot ignore the risks and the potential problems that might arise from this reform.

  5. Andre says:

    That infographic are the things that nightmares are made of.

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