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Building a nest egg never easy
http://www.sina.com.cn 2004/09/13 15:07  Shanghai Daily

  Maybe retirement plans around the world need a Swedish massage.

  I'm not referring to the body work, but a kneading based on the Scandinavian country's pension system, which was reformed in recent years to include individual investment accounts.

  Examining the Swedish program will provide some potent insights as nations heed US Federal Reserve Chairman Alan Greenspan's recent call to "recalibrate our public programs" to ensure that future retirees avoid poverty.

  Annika Sunden, a senior economist at the Swedish National Social Insurance Board, says the introduction of individual accounts was contentious, even though 80 percent of the Swedish Parliament supported it.''

  In 1998, the Swedish government reformed its public retirement system by offering a two-tiered "Premium" pension plan. The first component of the program is a pay-as-you-go plan that provides a benefit based on a worker's lifetime earnings. An individual account where the employee has an opportunity to indirectly manage retirement assets through mutual funds is the second part of the program.

  Contributions total 18.5 percent of wages, with the first tier receiving 16 percent, and the second tier, or individual account, getting 2.5 percent.

  Retirement funding is equally split between employers and employees.

  To ensure that those with no or low earnings receive benefits, the system provides a means-tested guaranteed benefit that amounts to as much as 40 percent of the average worker's (pre-retirement) wages.

  "The Swedish plan works well for Sweden," Sunden says, "but I don't know if it will work well for the US."

  In the US, where there are more than 10 private vehicles for retirement savings, the average individual retirement account was US$55,000 in 2001, which would only produce US$300 a month when withdrawn. So, just offering individual accounts doesn't solve the problem.

  The Lifetime Savings Account, which has been twice proposed by the Bush administration, allows tax-free withdrawals for any purpose. Such a no-strings-attached approach would only reduce the amount set aside by future retirees in the US, where the private savings rate is 2 percent and some 55 percent of workers cash out their defined contribution plans when changing jobs.

  As more countries consider private accounts, they also need to be combined with minimum return guarantees and low-cost, diversified funds so that a prolonged stock-market decline won't devastate their retirement funds.

  Default accounts that automatically diversify participants in stocks and bonds, such as the ones offered in Sweden, are a start.

  "Most participants have lost money in their accounts because of the fall in the stock market and many are starting to question the reason for managing their own pension funds, in particular since the default fund has performed better than the average investor's portfolio," Sunden says of her recent review of the Swedish system.

  And for people who can't afford to fund a plan, a combination of tax credits and matching subsidies for those falling below a certain income level should be considered.

  For example, US Representative Harold Ford Jr has proposed a plan that would give "every American newborn a US$500 savings account, with an additional US$500 for those babies born into poverty."

  Retirement funding will continue to be a global albatross unless policy makers begin to think creatively about private accounts. Simply handing back a portion of Social Security or public pension contributions won't create new savings.

  (John F. Wasik is a Bloomberg columnist. The views expressed are his own.)

  编辑:趴趴


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