And a big one from another source:"You know, Senator Clinton says that she's concerned about Social Security but is not willing to say how she would solve the Social Security crisis," Obama told the National Journal. "I think voters aren't going to feel real confident that this is a priority for her."
Social security: Responding to the crisis
ISSA, 13.01.2010 | Feature
The financial and economic crisis has highlighted the centrality and strengths of social security systems, but also their potential weaknesses. Increasing unemployment has hurt contribution revenues and increased expenditure due to increased benefit demand. Yet many governments have seized on social security systems as a vital policy tool to counteract the social and economic impacts of the crisis and act as counter-cyclical automatic stabilizers. (1).
The financial and economic crisis that began in 2007 has delivered a tumultuous two years for the financial world, sending many financial institutions into a tailspin and putting governments in difficulty. As one might expect with such an extensive crisis, social security systems have also been affected, and social security funds have suffered. A large number of these schemes witnessed a sharp contraction of their asset portfolio values in 2008, affecting their long-term sustainability. Nevertheless, social security systems have responded effectively to the test by softening the impact of the crisis. The challenge for social security now is to continue to cope with rising unemployment and the burden of future debt.
The impact of the crisis on social security financing
In the longer term, the crisis may lead to a reassessment of the roles and scope of many national social security systems. In the shorter term, however, a challenge facing many systems has been one of maintaining financial equilibrium. A recent ISSA survey (2) of the impacts of the crisis on social security funds has revealed that many funds, especially in industrialized countries, have experienced a negative investment performance.
Many national pension systems have experienced substantial losses on the asset portfolio values. For example, the negative returns suffered by industrialized countries in 2008 ranged from -29.5 per cent to -3.2 per cent. But not all funds have suffered to the same degree. In some countries financial investment strategies have proven less risky and volatile. This is particularly so for strategies focused on domestic, fixed income securities, albeit that these may produce potentially lower average returns. A number of developing countries have faired quite well, with Mexico returning 7.46 per cent and Thailand 9.4 per cent in 2008.More recent data on the performance of pension funds seems to suggest that some funds in the industrialized countries have begun to recover with a number of funds posting positive returns in the 2nd quarter of 2009.
There are additional financial challenges facing social security in the short to medium term. Rising unemployment rates, reduced contributions, and surges in new claims for benefits have placed and continue to place social security systems under considerable strain, especially as unemployment continues to grow (3). For instance, increasing cash benefits or introducing new ones or freezing or reducing contribution rates for businesses, all of which may be considered useful mechanisms to boost consumer spending and support economic activity, may also lead to financial imbalances in social security programmes. These measures, as part of wider stimulus packages, will constitute a semi-permanent financial burden for social security. The risk for social security is one of increasing deficits, therefore limiting future capacity to pay adequate benefits in years to come.
Moreover, an additional medium-term risk is the high probability of a prolonged labour market recession. This is a very real possibility and according to the International Institute for Labour Studies, evidence from the experience of previous crises indicates that labour markets tend to recover only four to five years after an economic recovery has begun (4). This scenario spells continued labour market problems and serves to reaffirm once again the relevance of social security to compensate for labour market failure. Coupled with the additional burden of demographic ageing, all of these factors pose problems which have to be overcome by social security.
Nevertheless, the sharp contraction in the value of equities in industrialized countries – averaging a drop of 23 per cent in 2008 – and a dramatic policy-induced fall in interest rates have increased the financial insecurity of current and future retirees who expect to rely heavily on private pension plans for much of their retirement incomes. In response, some public pension schemes are now being asked to respond to political pressure for higher benefits, even as they too look to mounting financial challenges stemming from the crisis and population aging.
