The growing political role of retired people was referred to by US economics Nobel prize winner Gary Becker of the University of Chicago. "Benefits to the retired depended on the power of retired people in the political process," he said. In the US they were now a powerful political group. "Their goals were greater benefits at earlier ages."
He declared he was an advocate of privatising social security. "But some advocates of change minimised the transition problems, while defenders of the security system exaggerated the costs of moving."One of the key ways of making changes was to cut the link between work and benefits payments. "The age of stopping work and benefits becoming payable should be separated." In Belgium, only two thirds of those aged 55 were in work, while at age 60 only a third were still in the workforce. This figure was the same for Italy and in France 40% of the 60 year olds were out of the labour force and there were few over 65s at work. In the US and Japan the unused labour capacity ratios were much lower. "The answer is simple, Europe's incentive structure is bad." Generous benefits were provided in retirement and these were payable at too early ages.He argued that this was economically wasteful. "Most people would prefer to stay in the labour force, if not given an artificial incentive."
His solution was an individual account system with accumulated benefits, which should be age but not work-based. It would help older people if they were brought back into the workforce. This would be one way to help pay for the transition from a pay-as-you-go system. But when introducing any individual account system for retirement, he warned against excessive regulation, which was always a temptation. "Schemes are excessively regulated in Latin America."
According to Becker, the role of compulsion should be zero or very low, but there should be tax incentives. "Given that there has to be compulsion, 10% is far too excessive. I would bring in a maximum of 2% compulsory level."