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Security for Social Security –Is Privatization the Answer?

Published online by Cambridge University Press:  29 November 2010

Robert L. Brown
Robert L. Brown
Affiliation:
University of Waterloo
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Abstract

The parallels between the funding of an individual pension plan and a paygo social security system are presented. In each plan, the total expected value of benefits can exceed the total expected value of contributions. For the individual pre-funded plan this is true because of the discount factor, δ, representing investment income earnings. For the paygo social security system, the analogous “discount” factor is denoted r, the total of real growth rates of the labour force and real productivity gains per worker, that is, real growth in wealth production. The paper then presents arguments to show that a fully-funded social security scheme is no more secure economically than a paygo scheme. Both schemes rely on the ability of the economy to create and transfer wealth. That is, security for social security does not lie in privatization. The paper also reviews the Reform Party's proposal for a “Super RRSP” replacement for social security and analyses its advantages and disadvantages.

Résumé

Cet article établit un parallèle entre l'établissement d'un régime individuel de retraite et un système de sécurité sociale par répartition. Dans chaque cas, la valeur totale de la rente prévue peut dépasser la valeur totale prévue des cotisations. C'est une réalité qui s'avère juste dans le cas d'un régime individuel pré-financé à cause du facteur de réduction, δ, représentant les revenus de placement acquis. Dans le cas du système par répartition, le facteur de «réduction» parallèle est représenté par r, le total du taux de croissance réelle de la population active et des gains de productivité réelle par travailleur, soit la croissance réelle de la production de richesses. On explique ensuite qu'un système de sécurité sociale pleinement subventionné n'offre pas plus de sécurité économique qu'un système par répartition. En effet, les deux systèmes s'appuient sur la capacité économique de génération et de transfert de richesses. La garantie de sécurité sociale ne repose donc pas sur la privatisation. On examine plus loin la proposition du Parti réformiste de «super R.E.É.R.» pour remplacer la sécurité sociale. On en analyse les avantages et les désavantages.

Keywords

Population AgingBaby-boom/Baby-bustSocial Security FinancingPay-as-you-goC/QPP ReformVieillissement de la populationbaby-boom/effondrement de la natalitéfinancement de la securité socialepaiement par répartitionréforme du RPC/RRQ
Type
Articles
Information
Canadian Journal on Aging / La Revue canadienne du vieillissement , Volume 16 , Issue 3 , Fall/Automne 1997 , pp. 499 - 518
Copyright
Copyright © Canadian Association on Gerontology 1997

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