International Roundup

September 14, 2000

On Tuesday, pension reform in Germany took a step toward realization as opposition parties dropped their opposition to plans by chancellor Gerhard Schröder to supplement Germany's troubled pay-as-you-go system with private funded pensions. Peter Koenig of Morgan Stanley Dean Witter in Frankfurt said the move "amounts to a paradigm change in perceptions". Currently employees and employers together pay 19.3 per cent of gross wages into the system, while retirees receive pensions equivalent to 70 per cent of average net wages. Details of the plan should be revealed within two weeks, but Labor minister Walter Riester suggests that younger workers could pay additional taxes into private pension funds, beginning at 0.5 percent of wages in 2001, rising to 4 per cent by 2008. These private accounts would be optional, but incentives to invest of up to US$9 billion annually are envisaged.

In the United Kingdom, state pensions could be a large part of the coming election season. Some, including Prime Minister Blair's father, television actor Tony Booth, are lobbying to have pensions indexed to wages rather than inflation. In the U.S., Social Security is indexed to wages prior to retirement, inflation afterwards. Indexing fully for wages would cause large increases in costs over time. The Conservative Party, led by William Hague, pledge to create a funded optional alternative to the basic state pension to help young people save for retirement. The Tories would allow workers to invest funds by private sector managers in a government-approved scheme.

Meanwhile, Michael Tanner moderated a panel on pension reform in China at a Cato Conference, Globalization, the WTO and Capital Flows, held in Hong Kong September 4. The speakers included Sun Jianyong, Deputy-Director General, Department of Social Insurance, PRC; Alan Siu, Deputy Director, Hong Kong Institute of Economics and Business Strategy, The University of Hong Kong; and David Hatton, Managing Director, Aetna Trust Ltd. and Vice President, Pension Business, Greater China Region. At the conference, Chinese leaders pledged that their efforts to modernize China's pension system will continue toward their goal of greater private savings and individual control.

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