US PENSION SYSTEM

US Pension system



US pension system

Introduction

The pension system in US is difficult to understand. The following paper is an analysis of the article “Will Personal Accounts increase pension saving?”. The basics of the US pension system were laid in 1940s. Since the 1960s, consecutive governments have changed both state and private pension essentials (Patrick, 1999).

Discussion and Analysis

The U.S. system can be described in the classical setting of various levels. Today, the U.S. pension system has three levels.

Level 1 is provided by the state and consists of a basic pension to which all or contributes or has access, providing a minimum level of retirement income.

Level 2 is also provided by the State and aims to provide pensions, as well, which is more closely related to levels of employee earnings. Level 2 is less than redistribution (from rich to poor) as Tier 1. Level 1 and Level 2 operate in an unfunded pay-as-you-go contributory scheme through National Insurance (NI) system.

Level 3 is the provision of private pensions that is all voluntary pension plans that are not directly funded by the state. Private pension contributions by the employer and / or the individual pension funds designated for the individual. The main objective of private pensions is to redistribute income between the individual's life, not to redistribute income from higher income to lower-income people (Friebel, 1999).

On the advice of an independent advisory group called the Committee on Pensions, the U.S. Government in recent years has been conducting a comprehensive package of reforms of state and private pensions (Ridgeley, 1998).

The most recent reforms, currently passing through Parliament and expected to spend in U.S. law in late 2008, are aimed at increasing voluntary savings for retirement. The Government intends to do so through measures to overcome the inertia that is often cited as a barrier to employees to join pension schemes based on the work, increasing the incentives available for those savings on pensions, and expand access to workers whose employer does not offer a pension scheme based on the work.

If approved, the reform will require all employers to automatically enroll their employees in a personal account (a new type of individual retirement account, initially arranged through an employer) or an existing good pension plan. Employees contribute 4 percent of their income group and, unless the worker opts out, employers are required to contribute a minimum of 3 percent. The Government will contribute more than 1 percent in the form of tax. If the employer does not have a scheme that can make these contributions, individuals (through the employer) are auto-enrolled into a new national pension scheme, currently known as personal accounts.

The question is whether these reforms will provide increased retirement savings plan to achieve? The Pensions Policy Institute (PPI), an independent research institute, has examined the impact of government reforms, is likely to have and identified challenges for the Government and the pension bill is making its way in Parliament (Roberta, 1998).

Reforms

The Government's proposals largely conforms to the model established by the Pensions ...