Social Security

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Summary

Nowadays, the two most common forms of national retirement pension systems are centrally administered public defined benefit (DB) programs, which are normally financed on a quasi pay-as-you-go (paygo) basis, and mandatory privately defined contributions (DC) programs, which are normally fully funded.

Despite the generally accepted overall soundness of these major types of systems, this paper argues that a third, more convenient type of social security system deserves to be promoted. It is a hybrid of the above-mentioned systems that consists of a funded centrally administered public program, whereby either DB or DC would apply though DB is to be preferred. Operating expenses are materially lower under a public centralized system than under a private fragmented system. Full funding provides a more equitable allocation of pension costs among successive generations of contributors and, through the resulting investment earnings, avoids further widening of the wealth gap between rich and poor people.

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