Social Security Abroad

Recent dmusslons regsrdmg the sue of the socml security trust fund m the Umted States have trlggered a number of mqmr~es with respect to fundmg practices m other Western countrles The general behef 1s that the practice of accumulatmg large funds to safeguard or stabdue the social security system 1s qmte common In fact, however, fern countries follow this practxe The programs with sizable reserves are, for the most part, relatwely new and ~111 not pay full benefits for some tune When full benefits are eventually paId, the funds are expected to dwmdle Most countrles base thaw social security pro_ grams on pay-as-you-go financmg The long-tnne practice of accumulatmg wzable capital funds largely dlsappeared m the post-World War II period as a result of mflatlon In the newer social security systems, the pay-as-you-go approach appears to reqmre only modest contrlbutlon rates to cover the small number of retnwes mitlally recelvmg benefits To avoId subsequent frequent mcreases as the number of beneficlarles grow, however, contnbutlon rates are nutndly set higher than needed As a result, funds are built up m the early stages of the program, mhlle pensloners are few and be&its low, with a subsequent declme as benefits overtake contrlbutlons Fundmg practices m Austria, Canada, Fmland, France, Germany, Norway, Sweden, Swtzerland, the Umted Kmgdom, and the Umted States are presented here m some detail For easy companson, the development of each country’s fund m terms of size m relation to expenditures IS shown m t,abular form when appropriate Some of the programs are relatwely new and ~111 not pay full benefits for sOme time Canada (1965)~ emland (1961), Norway (1966), Sweden (1962)all earnmgs-related programs-and Switzerland (1948) By far the largest fund IS being created m Sweden for the earnmgs-related pension program