Established in 1935, Social Security has become a popular, ubiquitous safety net for retired Americans and their families. In fact, it’s essential. But this high-priority budget item has stymied senators and congressmen of all stripes. They’re loath, at best, to tinker with it, even though its funds are expected to run out by 2037.
To put the numbers in perspective: $1.5 trillion in social benefits are to be paid out monthly in 2024 to around 68 million Americans and more than 67 million beneficiaries, with an operating budget of $14.2 billion. The Social Security Administration’s program manual alone is more than 20,000 pages long, making it a proverbial third track in American politics.
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In an effort to reform, some Republicans have proposed raising the retirement age from 67 to 70. Democrats, meanwhile, want the rich to fund a larger share of Americans’ Social Security benefits.
Given the different views, it might be worthwhile to compare other pension systems around the world.
United Kingdom: National Insurance Scheme
Introduced in 1912, the UK’s social insurance system – also known as social security – is administered by the UK Department for Work and Pensions. In 2021, it managed £220 billion (around $280 billion) in spending, making it the country’s largest government program.
Employer and employee contributions total at least 8%, significantly less than the US contribution rate of 12.4%. The current retirement age in the UK is 66, but will rise to 67 between 2026 and 2028, and could reach 68 in the next few years, depending on Parliament’s decisions.
For those eligible for the full amount, the UK state pension pays out £221.20 a week, or more than $1,125 a month. In the United States, however, if you retire at age 70 in 2024, the maximum you can earn is $4,873 a month—significantly more.
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India: Employees Provident Fund
Employees and employers each contribute 12% of the employee’s salary to the Employees’ Provident Fund Organisation (EPFO). However, this process seems to raise a lot of questions considering the staggering 427 questions on the FAQ page. If you took 5 minutes to read each answer, it would take you more than 35 hours to complete.
India’s Employees’ Provident Fund covers only a small portion of organised workers – those who are in a direct and regular employer-employee relationship. That’s just 35 million out of 400 million workers with pension plans, according to Dezan Shira and Associates.
However, those who are eligible can start receiving benefits at the age of 50 and are entitled to a full pension at the age of 58. From 2023, according to Reuters, employees will receive around 38% of their last salary as a pension.
Canada: OAS and CPP
Pension contributions in Canada amount to 11.9% of salary and are split between the employee and the employer. Canada supports retirees financially through two programs: Old Age Security (OAS) and the Canada Pension Plan (CPP).
The OAS is a monthly payment you receive when you are 65 years old or older. It is based on the number of years you have lived in Canada after you turn 18. If you are between the ages of 65 and 74, your maximum monthly OAS payment is 718.33 Canadian dollars, and 790.16 dollars for those 75 and older (about $518 and $570 U.S., respectively).
The CPP is a monthly, taxable benefit that replaces a portion of your income when you retire and that you receive for life. While the standard age to start receiving benefits is 65, you can start receiving benefits as early as 60 or as late as 70. In 2024, the maximum monthly amount you can receive if you start your CPP benefit at 65 is $1,364.60. However, the average monthly payment in April was $816.52 ($984 and $589, respectively). That’s still less than the maximum in the United States.
What reforms are possible?
One possible solution for the US—which is not so far-fetched given the track records of other countries—is to simply raise the retirement age. That’s exactly what’s happening in Denmark, where the country plans to raise the current retirement age from 66 to 68 by 2030 and to 69 by 2035. Germany also plans to raise it to 67 by 2031.
There’s still no clear answer on how lawmakers can fix Social Security’s dwindling funds, and the solution may not please everyone. Cuts in benefits and declining spending can lead to a worse retirement, and increasing funds by raising taxes on people in certain tax brackets isn’t good news either. But one thing is certain: If there’s no plan at all over the next decade, it will likely raise concerns that the safety net for people nearing retirement isn’t as secure.
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This article is for informational purposes only and should not be construed as advice. It is provided without warranty of any kind.
