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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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