Introduction

Although old-age insurance is one of the oldest social-insurance programs – it first began in Germany in 1889, and by the start of World War II it was in place in most industrialized countries – today a wide variety of welfare states have partially privatized the program. Still, except for Chile, no government has replaced it completely with a private-pension system.

I will come to the same conclusion about a Chilean-type private-pension alternative to old-age social insurance that I did about a market-based alternative to NHI in the previous chapters. In certain respects, the case against government provision and financing of retirement pensions is even stronger than the case against NHI.

Because the term “old-age social insurance” is awkward, I will henceforth use “Social Security” or SS for short. Not all countries use the label of Social Security to refer to government-financed and -administered pensions, but some do. The reader should keep in mind that SS will refer to old-age social-insurance programs, regardless of whether or not they are called SS. The market alternative to SS are compulsory private pensions (CPPs). Systems that are neither pure SS nor pure CPP will be called mixed systems.

The Institutional Alternatives

The Central Features of SS

SS has two central features: first, it is a pay-as-you-go scheme (PAYGO), rather than being fully funded, and second, in many cases the management and financing of the system reflect both insurance and welfare (i.e., needs-based) principles.