Social security systems around the world

Social security programs are increasing in number around the world.  Systems in many of countries
have funding problems. Social security may also have unintended effects on economic and demographic behaviour in a country. Many of these behaviors are only now beginning to be understood. This briefing looks at:

• programme types: Two different kinds of financing systems are generally used for social security programs: defined-contribution and defined-benefit. These systems work very differently in the way they fund accounts.
  
  • defined-contribution accounts are similar to pensions offered by private employers—individuals contribute to their accounts and receive payments from their own accounts when they are eligible for benefits. 
    
  • defined-benefit, or pay-as-you-go (PAYG) system, which exists in all OECD (Organization for Economic Co-operation and Development) countries including the United States. This system consists of a benefit amount defined by the government and which, in many systems, bears little relation to the amount actually contributed by the individual. Benefits paid to retirees are contributed by workers paying into the system currently
• effects on retirement age: many developed countries have problems with their PAYG systems. One concern is population aging: In many industrialised countries, relatively more people are retiring and
  drawing benefits and fewer workers are paying into the system.  But recent studies have pointed to incentives that make retiring at the earliest allowed age the most prudent financial course of action -  taking into consideration both the benefits a person might lose over a lifetime by working extra years past the early retirement age and what that person would gain in income
  
• effects on fertility rates: social security programs may be inadvertently contributing to their funding problems by decreasing fertility rates -  a social security scheme, in effect, substitutes for a family system of transfers, reducing the need to have children in order to ensure financial security in old age

In terms of future research, the paper states that international comparison of social security systems must
be done carefully. Some systems are relatively new, others long-established, but all are embedded in economic and demographic realities and in cultural expectations about who cares for the elderly. In addition, the recent global financial crisis may test the performance of social security systems with defined contribution components, providing new information on the pros and cons of these systems.