There is little political capital in addressing pension reform. Who wants to engage willingly in an exercise in balancing disappointment and dissatisfaction? And yet, the aging workforces of developed countries around the world have created long-term fiscal challenges that are forcing their governments to address this issue now.
Take the situation in the U.S., for example. We are being told that if 25 percent of the contributions to the social security system can be deposited in private versus public accounts, the transition "cost" (really a fiscal budget deficit) will be up to $2 trillion. Theoretically, the impact of this on pensioners could be substantial. If one accepts often-referenced calculations, the current total return on all social security contributions made to the U.S. government is the equivalent of about 2 percent in benefits returned to individuals. By diverting 25 percent of one's contributions to investments that could yield even as little as 5 percent, the rate of return, on average, would rise to 2.75 percent. It may not sound like much, but a 37.5 percent increase in benefits to the average recipient of social security could look very attractive. Further, it would address a potential shortfall of huge proportions in the government's flow of funds that would begin to be felt sometime in the 2040s.
Great Britain has had roughly a similar government-sponsored system, combining public pensions with something called personal pensions, since the late 1980s. It is projected to result in a 26 percent decline in government pension costs over the long term. But as many as one in five Brits are thought to be at risk of not supplementing their eventual loss of government pension income with adequate returns from their personal pensions. The fear is that they will eventually have to turn to the state anyway for help through various programs that provide a "safety net."
In 1997, Mexico inaugurated a program in which all pension contributions are collected by the State and transferred into individual investment accounts managed by private organizations, called AFORES, registered with the government and required to invest in Mexican government bonds. As of January 1, 2004, AFORES were allowed to begin investing up to 15 percent of fund assets in the Mexican stock market and up to an added 20 percent in foreign securities. This ruling is thought to have helped fuel a 40 percent increase in the value of the stocks on the Mexican Bolsa during 2004. Although start-up costs have been high, returns to the accounts are outpacing inflation, and because there are strict investment guidelines, the hope is that the AFORES program will avoid most of the misfortunes arising from allowing individuals to invest their own funds.
What is the answer to this societal issue, one that will be perceived as doing the least harm to a status quo that is not perceived by most (at least in the U.S.) as being currently painful? What kind of trade-offs should be made between personal responsibility, free enterprise, and selective gain and pain on the one hand, and collective responses and shared gain and pain on the other? Is the British model best for the U.S.? Does Mexico offer a better response? Or is there some other preferred alternative? And why is it that a concept—life-long security—that should bring joy, comfort, and self-satisfaction to all of us should be so distasteful to address in public? What do you think? 
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