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April 26, 2005

Tierney on Social Security Privatization: Seeing the Tree

John Tierney looks at the case of a single individual and concludes that privatization in Chile is a success. Success stories are easy to find when the focus is on a single individual, in this case an economist at the University of Chile:
The Proof's in the Pension, NY Times, April 26, 2005, By John Tierney … What would Pablo Serra do? … he and I were friends in second grade at a school in Chile. He remained in Chile and became the test subject; I returned to America as the control group. … Pablo, who grew up to become an economist … called up his account on his computer and studied the projected retirement options for him …"I'm very happy with my account," he said to me after comparing our pensions. He was kind enough not to gloat. When I enviously suggested that he could expect not only a much heftier pension than mine, but also enough cash to buy himself a vacation home at the shore or in the country, he reassured me that it would pay for only a modest place…
But what if we look at the whole forest, not just a single tree? This is a post from earlier in April:
In Chile: A Safety Net With Some Holes, By Monte Reel, Washington Post Foreign Service, Monday, April 11, 2005; Page A11 ...Given the pace of contributions, more than half of the workers who retire in the next 30 years will not have enough money in their plans to receive the minimum payout...
According to this report, the forest is much less healthy than the single tree Tierney examined. [Here's a link to a Washington Post story about privatization in Britain where "... 75 percent of private plans have contribution rates that fall below the level needed to provide adequate pensions." Another link on shortfalls in the Chilean system - thanks to Jennifer and anne.]

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