Washington, 29 January 1999 (RFE/RL) -- Demographers say that longer life spans and the arrival of post-World War II baby boomers at retirement age will challenge -- if not break -- national retirement systems around the world in the early part of the next century.
Most systems of public pensions, including the social security systems in most former communist countries as well as the United States, were set up on a pay-as-you-go basis.
That is, current workers pay in and that money is used to pay off current pensioners. The system works so long as workers easily outnumber retirees.
But at differing times early in the 21st century, that ratio will switch from at least three or four workers to each retiree to, in some cases, barely one or two workers per pensioner.
The International Monetary Fund (IMF) and the World Bank have been advising the countries of Central and Eastern Europe and Central Asia to redesign their systems as part of their overall reforms.
In the U.S., the question of what to do with the system has long been an extremely touchy political question.
President Bill Clinton, in his recent State of the Union Address, proposed that a portion of the current U.S. government surplus be set aside in the Social Security trust fund to help keep the American system going at least until around the year 2045.
He also said it was worth looking at suggestions that at least some of that Social Security money be shifted from treasury bonds and notes to direct investment in the stock market.
The idea of putting a part of the government pension money into stocks and bonds has been advocated by others, but the chairman of the U.S. Federal Reserve System (Central Bank), Alan Greenspan, came down firmly against that idea in testimony Thursday to a Senate subcommittee.
Greenspan, who was originally appointed to the independent post by Republican President Ronald Reagan and reappointed by both Republic President George Bush and Democratic President Bill Clinton, carries a great deal of weight when he speaks at the Capital.
He said putting government pension money into the stock systems is dangerous from two perspectives -- it puts the money itself at risk to the fluctuations of the markets and it would damage the very efficiency of the markets.
Stock prices in recent years, even with a few minor adjustments, have been rising at an unprecedented rate, but Greenspan says this can't go on forever. "History tells us that cannot go on indefinitely,� he told the senators, and if guaranteed pension moneys were invested in the markets during an extended decline, the government would have to make up the losses.
But more worrying, said Greenspan, would be the effect such government investment would have on the markets themselves. "Even with Herculean efforts, I doubt if it would be feasible to insulate the trust funds from political pressures -- direct and indirect -- to allocate capital to less than it's most productive use."
He said a perfect example of this are the state government pension funds which currently do invest in the stock and bond markets. Political pressures invariable put limits on where or how these fund's can invest -- not in apartheid South Africa, not in companies which pollute the environment, mostly in the home state -- and that by its very nature reduces the efficiency of the system.
There is no question, said Greenspan that the U.S., with the lowest personal savings rate of all the major industrial nations, must dramatically increase its national savings.
Greenspan said the best use of the current government surplus money would be to reduce the national debt. That would lower interest rates and encourage strong economic growth throughout the economy, he said, a true form of national savings. But if the political leadership can't bring itself to keep from spending the surplus, he said, then tax cuts would be the next choice.
Even without investing public pension funds into the markets, Greenspan renewed his caution that the U.S. cannot remain an "oasis of prosperity" if the rest of the world is in economic trouble. "We do live in a global world and we will be impacted eventually unless the rest of the world starts to pick up in a significant manner," he said.