Social security is “The theory or practice of providing economic security and social welfare for the individual through government programs maintained by moneys from public taxation.” (Random House) (http://kimberlyh32.hubpages.com/hub/Mandatory-Private-Pension-Systems) While mandatory private pension system is: “personal plans that individuals must join or which are eligible to receive mandatory pension contributions. Individuals may be required to make pension contributions to a pension plan of their choice normally within a certain range of choices or to a specific pension plan.”(OECD Working Party on Private Pensions, 2005) Mandatory private pension system is being adopted in most developed countries. For instance, in Latin America and central and Eastern Europe, mandatory personal accounts systems have been introduced to replace part of social security benefits. Countries such as Australia, Denmark, Finland, Iceland, Norway and Switzerland have all adopted mandatory occupational system. (OECD private pension outlook,2008, pg 40)
Mandatory private pension system leads to growth of pension funds. For instance in Mexico, the pension fund industry was given a substantial boost with the introduction of mandatory pension system. In this case, it means that the government burden of taking care of the weak and the elderly using its available resources is reduced. High accumulation of mandatory pension funds therefore has a positive impact on the economy of the country. Development of industries is heavily linked to this reform process in social security. It also enables market penetration of the regions insurance industry. As more security intended money is being generated, the insurance firms find their way into the markets. This in turn lead encourages lowering of premiums since they are in competition to get customers. The citizen of that country will therefore enjoy the good services provided by the many insurance companies. The insurance industry has traditionally been concentrated in the non-life sector but through this private pension system, it has gained very much importance. (Paris :OECD publisher,2000, pg.127) Private pension plans are distributed directly to employees, bypassing employers and although occupational arrangements exists, they are dwarfed by mandatory personal plans.(OCD Private Pensions Outlook,2008, Pg 50)
Mandatory private pension plan is important in the sense that even after retirement; one can utilize the money he/she had been saving regardless of anyone else interfering in the way the person uses the money or the time he/she begins using the money. It is different from current social security system since the person is allowed to choose from a variety of systems one is willing to save his/her money in for future use. One is free to save the amount he/she wants. It is also advantageous because one does not have to work the whole of his lifetime. In some way, I feel it’s a way exercising our freedom and personal human right. In addition, the money saved through private pension system is guaranteed of its security and over the period of years, it can earn lump sum amount of interest. Due to all this advantages of mandatory private pension system, I hereby support the replacement of the current social security system.
Organisation for Economic Co-operation and Development, and SourceOECD (Online service). OECD Private Pensions Outlook 2008. Paris: OECD, 2009.
Private Pension Systems and Policy Issues. Paris: OECD Publishing, 2000. Internet resource