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Reforming Public Pensions in the U.S. and the U.K.

Reforming Public Pensions in the U.S. and the U.K. OASDI Income and Cost Rates Under Intermediate Assumptions (as a percentage of taxable payroll). Source: 2005 Annual Trustees Report, Figure II.D2. Old Age, Survivors and Disability Insurance (OASDI).

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Reforming Public Pensions in the U.S. and the U.K.

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  1. Reforming Public Pensions in the U.S. and the U.K.

  2. OASDI Income and Cost Rates Under Intermediate Assumptions (as a percentage of taxable payroll) Source: 2005 Annual Trustees Report, Figure II.D2.

  3. Old Age, Survivors and Disability Insurance (OASDI) Payroll tax rate ….12.4%, up to cap of $90,000 (indexed to average earnings)

  4. BENEFIT LEVEL FOR DIFFERENT AGES AT START OF BENEFITS PERCENT AGE For an age for full benefits (normal retirement age) of 67.

  5. Additional benefit of 10.4% per year of delay

  6. Primary-Insurance-Amount Formula for the 2005 Cohort Source: 2005 Annual Trustees Report, Figure V.C1.

  7. Replacement Rates Replacement Rates (in percent) Lifetime Earnings Replacement of Lifetime Earnings for Single Scaled Workers Retiring at the Age for Full Benefits in 2004. Source:Social Security Administration, Office of the Chief Actuary, Actuarial Note 2004.4, December 2004.

  8. Source: Fast Facts and Figures about Social Security, 2004, SSA Office of Policy Publication No. 13 11785

  9. Source: Fast Facts and Figures about Social Security, 2004, SSA Office of Policy Publication No. 13 11785

  10. Pension coverage has shifted to defined contribution – 401(k) – plans. Percent of Wage and Salary Workers with Pension Coverage by Type of Plan, 1981-2001 Source: U.S. Department of Labor. 2004. Private Pension Plan Bulletin: Abstract of 1999 Form 5500 Annual Reports; Alicia H. Munnell’s calculations from Board of Governors of the Federal Reserve System. 2003. 2001 Survey of Consumer Finances.

  11. President Bush STATE OF THE UNION ADDRESS February 2, 2005 “Right now, a set portion of the money you earn is taken out of your paycheck to pay for the Social Security benefits of today's retirees. If you are a younger worker, I believe you should be able to set aside part of that money in your own retirement account, so you can build a nest egg for your own future.”

  12. 5.0% 4.5% 4.0% 3.5% 3.0% Diverted revenue Percent of payroll 2.5% 2.0% 1.5% 1.0% Benefit offsets 0.5% 0.0% 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059 2061 2063 2065 2067 2069 Cash-flow Effect from Administration’s Individual Accounts Plan

  13. Trust Fund Ratio under Administration’s Individual Account Plan 8.0 6.0 Current law 4.0 2.0 - Trust Fund Ratio With accounts (2.0) (4.0) (6.0) (8.0) (10.0) 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041

  14. EFFECT OF “PRICE INDEXING” OR “REAL WAGE DEFLATING” ON BENEFITS Note: Calculated as 1minus (0.99 55-age), assuming real wage growth rate is 1 percent per year.

  15. EFFECT OF “PRICE INDEXING” OR “REAL WAGE DEFLATING” ON BENEFITS Note: Calculated as 1 minus (0.99 55-age), and 1minus (0.985 55-age).

  16. 66 67 68 69 70 Age

  17. BENEFIT LEVEL (in %)

  18. Intercohort Transfers

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