FInancial Outlook on Social Security Pensions - Research Paper Example

?Harold Wilson Dr. Simmons-Hammonds English Comp. 2 (1321) March 6, Financial outlook on social security pensions Social security pensions have been introduced in many countries as part of their security systems. In writing their journal, Bottazzi et. al. documented that pension benefits is a representation of a main constituent of retirement income in all industrialized countries (2187). These pensions boost individual savings through the conversion of government fiscal liability into personalwealth. It is essential to determine the reaction and perception of individuals on matters concerning pension legislation amendments. This takes place at the macro level. Personal retirement savings accounts were established into Ireland through in 2002 through the Pensions Act. These accounts are long term individual accounts that have been designed to help people save for their retirement in an elastic manner (Attanasio 3). The significance of security savings especially for those people with no pension provisions exist. With a personal retirement savings accounts, a person can change their employment and continue using the same account. It is also possible to change from one savings account to another at any time without charges. The two main different types of personal retirement savings account are all aimed at improving the financial security of individuals. These two are; standard personal retirement savings accounts and the non-standard savings accounts. The principle difference between the two saving accounts is on the charges. Moreover, there are restrictions on the type of property that the standard savings account can invest in. They only invest in joint funds where the hazard is extended on huge number and diversity of investments. However, the standard savings account meets the requirements of most people. The non-standard savings accounts tender broader investment alternatives. However, the individual should be understand the investment alternatives and be sure of the reasons they select them (Attanasio 3). It is also important that an individual can afford the suggested monthly payment and that it is the most efficient. There have been current reports that the social security pension programs are underfunded by 438 billion dollars. The accounting methods used to estimate their liabilities assume that better planning can earn higher investments with reduced risks. It is likely that plan assets could fall short. In such a case, taxpayers are expected to make up for the difference. However, the taxpayer guarantee value is not disclosed. While states recognize underfunded social security pensions, it is evident that the situation is worse than it is demonstrated by their accounting. If proactive steps are not taken therefore, taxpayers will be forced to cover huge shortfalls (Aguila 39). From such an analysis, it is evident that the financial outlook on social security pension practices is inaccurate. This is because the shortfalls exceed explicit state debts. It is, therefore, arguable that pension benefits, contributions, and retirement ages must be transformed. However, this may be difficult until accurate accounting systems are adopted. It is evident that the social security programs are currently experiencing financial problems. There has, therefore, been the question on social security policy on the retirement behavior of incentive programs. The role of private pension programs has been growing over the past few years. It is, there, important to review and monitor their performance in an international framework especially with the 2008 financial market crisis (Aguila 39). Rapid decline in labor participation of men has been a striking phenomenon especially in the second half of the twentieth century. A lot has been documented on causes of this trend amongst older men. Presently, through life-cycle model of saving, individuals get the opportunity to design consumption and saving plans through the assumed perfect information. Statistics, however, proof that many workers in the U.S. lack knowledge on pension benefits (Bottazzi et. al. 2198). As a result, the rate of saving is limited among workers. Medicare and Social Security are the biggest federal programs in the upcoming decades due to such factors as growth in expenditure and population aging. There was a 49 billion dollars deficit in 2010 and a projected 46 billion dollar deficit in 2011. This is as a result of a weakened economy. However, these deficits are expected to get smaller to about 20 billion dollars between 2012 and 2014 with the strengthening of the economy (Gruber 234). It is expected that after 2014, cash deficits shall grow fast. This is because the number of beneficiaries is also expected to grow at a considerably faster rate than the number of enclosed workers (Goss 3). In 2022, the yearly cash deficits will be compensated through saving trust fund resources from the treasury general fund. Trust fund balances shall continue to grow since the redemptions shall be less than earnings from interest. Benefits are expected to be fully payable on 2037. Public social pensions around the world are facing significant funding deficits that shall put state budgets under strain for several years. Pension accounting methods might have prevented these shortfalls from accumulating by encouraging higher employee and government contributions. A number of steps should, therefore be taken. Pensions should first disclose bigger details on investment risks. These details should include the covariance of returns between various elements and the instability of their investments. This is important information that managers use and the public should see it clearly. Pension plan should, also modify their accounting methods to comprise the market worth of plan liabilities. This is because current accounting methods underrate funding as well as offer an effortless way of solving them (Goss 3). Once more correct accounting methods are established lawmakers can reflect on policy options available for them. In conclusion, different individuals have different expectations on retirement benefits. Due to different expectations, involvement in pension systems varies from one country to other. For instance, pension schemes in Italy are highly assumed hence covering less than 10% of all workers (Bottazzi et. al. 2211). The different understanding of the pension schemes has seen an increase in reforms. These reforms have impacted the expectations individuals have on retirement benefits. Though there is some slight change in expectations, the trend seems low with a large number of individuals still changing their expectations. Assertively, the dragged growth in expectations despite the reforms communicated the fact that the young people, to whom the reforms are directed, might have insufficient savings on attaining their old age (Bottazzi et. al. 2211). Work cited Aguila, Emma. PersonalRetirementAccountsand Saving. 2008. 39. Print. AttanasioOrazio. Social Security and Housing Saving. 2003. Vol. 118, 1-3. Print. Bottazzi, Renata , Jappelli Tullio & Padula, Mario. "Retirement Expectations, Pension Reforms, and their Impact on Private Wealth Accumulation." Journal of Public Economics. vol. 90(12), pp. 2187-2212, Dec. 2006   Goss, Stephen. The Future Financial StatusoftheSocial Security Program.2010. Vol 70. 3-5. Print. Gruber, Jonathan. Future Social Security Entitlements and the Retirement Decision. 2007. 234-246. Print. Read More