U.S. model would benefit many other nations, International Labor Organization study finds
WASHINGTON - America has its baby boom bulge of retirees ahead, but inadequate pension plans and longer life spans are far more serious problems for the rest of the world.
A study released Thursday by the U.N.-affiliated International Labor Organization says 90 percent of the global workforce lacks pension plans capable of providing adequate retirement income.
Colin Gillion, director of the labor organization's social security department, said the U.S. approach of Social Security supplemented by employer-supported pensions and individual savings is a model for others to follow.
Other advanced economies that depend primarily on systems like Social Security worry that more retirees and fewer workers to support them have made pension plans too generous.
But in poorer nations, the greater concern is inadequate retirement plans that don't cover the vast numbers of workers involved in subsistence farming or daily wage jobs.
"The world in a sense is in two parts: those who worry that the scale of pensions is too great, and the other, 90 percent of the world, who really don't have enough and need more social security, not less," Mr. Gillion said.
Most countries have endorsed a labor organization standard that would provide workers who retire after 30 years of employment with pensions equal to 40 percent of their income.
Another labor organization standard urges welfare benefits to retiring workers who made so little in their working lives that the 40 percent standard would not ward off abject poverty.
Mr. Gillion said Social Security meets that test for the United States.
Pension plans have now emerged in much of the rest of the world, and are "one of the great social developments of the last 100 years," the study states. But most pensions fall well short of the standard because of poor management or because so many workers are not covered.
In Russia and other nations of the former Soviet Union, pensions guaranteed under communism have disintegrated through inflation and lack of government funds.
China and India are reforming pension plans and do a fair job in providing retirement income for industry and government workers, Mr. Gillion said.
As in many other developing countries, however, most workers in China and India work outside the formal economy - as farmers, migrant workers or employees of small firms without benefit plans.
Many Latin American nations are turning away from pay-as-you-go pension plans like Social Security because of poor management and inadequate funding. Seven countries have followed Chile's lead in establishing individual retirement savings accounts with mandatory worker contributions - a reform also popular in Central and Eastern Europe, the study found.
Yet these plans leave out many workers. The study said 80 percent of the jobs created in the last several years in Latin America were in informal parts of the economy not covered by retirement benefits.
These workers need to join together with small banks and insurance cooperatives to develop savings and health plans - some of which are beginning to emerge in India and Bangladesh, Mr. Gillion said.
Voluntary individual savings plans such as IRAs and 401(k) accounts are almost uniquely popular in the United States, and could make a big difference in Europe, Japan and other countries facing retirement funding crises, the study found.
A poll released this week by the Consumer Federation of America and the financial planning firm DirectAdvice.com found that Americans expect Social Security will cover just 29 percent of their retirement income. The poll showed that 59 percent of U.S. households now have 401(k) plans or other employer-related retirement savings.
Despite the widespread use of such plans, however, 59 percent of those contacted expect retirement to bring a decline in living standards. The poll of 1,006 households across the country was done by Opinion Research Corporation lnternational in March and had a margin of error of plus or minus 3 percentage points.
An analysis of the poll data and other research by Ohio State University economist Catherine Montalto found that just 44 percent of American households are saving enough to provide an adequate retirement.
"The model is good. We're just not saving enough," she said. "Particularly for low-income Americans, who have less access to employer-assisted savings and pensions."
Mr. Gillion said other wealthy economies face difficult political decisions to keep their retirement plans afloat. He said the most direct ways to improve retirement solvency in Western Europe and Japan involve raising the retirement age and encouraging women to enter and stay in the workforce.
The most political resistance, he said, has come from efforts to encourage men to retire later. In Western Europe, the average retirement age in 1990 was 59, and retirees could expect to live an additional 21 years. Comparable figures in 1950 were retirement at 66 and a retirement life span of 13 years.
"By age 61, only 10 percent of the men are left in the workforce in France," Mr. Gillion said. "The same is true in ... other parts of Europe."
U.S. workers retire on average at age 62, and typically live 18 more years. In 1950, retirement usually came at age 66, and retirees lived on average for 13 more years.