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In Britain and Chile, lessons for revamping Social Security

As the US weighs partially privatizing Social Security, other countries have lived under similar systems for decades.

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A stretched social welfare budget. A right-of-center government keen to promote individual choice. An aging population. A pension system facing bankruptcy.

It sounds like the scenario outlined by President Bush as he urges changes to Social Security.

But it could equally apply to Britain 15 years ago, when the country began offering partially private pension accounts - a policy that was hugely popular at first, but has since proven highly controversial.

Ten years before that, in Chile, things were even more dire. The military government, facing what was by all accounts an unsustainable retirement program and a possible default on its obligation to retirees, replaced the state-run pay-as-you-go system with a three-pillared, largely private one. Twenty-five years later, Chile is looked to as a model of how to retool Social Security.

At least 20 countries have added some kind of private component to their traditional pension systems, with seven more in the process of implementing them. Each offers lessons on how - and how not - to revamp Social Security. With President Bush and his Cabinet in the middle of their "60 stops in 60 days" tour to tout changes to the US retirement system, the Monitor asked its correspondents in London and Santiago to examine two of those lessons.

Chile's bold moves pay off

Chile has what economists call a fully funded system, containing enough money to cover all retirees if they simultaneously decided to cash out.

The first pillar is the state's responsibility, which covers workers who retired before 1980 and guarantees minimum pensions for poor workers.


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