Social security system in US & Malaysia,which works bett

[windy_city]

Read a quite interesting article in Wall Street Journal today (6/28/04) title "How Sick Is Social Security?"
The baby boom problem has worsened the social security problem.

The main different between the social security system here and back home (most Asian countries adopt similar social security system (just by different name) as Malaysia) In US, the Social Security System (SSS) is pay-as-you go system, where else in Malaysia, you are saving for your own future.

Anyway, in my opinion, the system works best depend on country and cultural. In Malaysia (or most Asia countries), Asian will not work to pay for other people benefit.
So what you guy think, is the SSS/EPF/KWSP system in Malaysia working well, or there should be some changes to it?

[jiinjoo]

Should also compare it with those even better welfare states like in certain european countries.

Fundamentally, it's about how to transfer weatlth from the fortunate to the unfortunate. As a country, everyone should enjoy certain basic level of protection and support as part of their social contract with the government. The money has to come from somewhere, either directly from taxes or thru other means.

EPF actually does the same thing - although you're guaranteed what you earn is yours in the future, you're still putting money in the government's hands, since EPF uses this 200 billion ringgit to invest in government bonds (among others), allowing the government to channel the money to improve social goods and raise standard of living. Some chunk also goes to local public listed companies, fueling the economy.

The question should be this: which system is able to help the most people most of the time? The problem faced by certain european countries where taxes are up to 60% is that people becomes lazy. The productivity drops.

In US, a growing number of companies are pushing their employees to do the 401K on top of social security for the fear that there won't be enough money in the future for everyone. 401K is exactly like EPF. Savings are backed by government and earns a favorable rate.

So is the "I want my money" thing exclusively Asian? I don't think so. Everyone wants the fruit of their labor. Is sharing a good thing? Coz you know by helping the unfortunate you actually increase your standard of living (e.g. less crime from desperate people) indirectly.

Probably people don't think that much about their society - so to make people work a lot more EPF is the better solution, since it is phrased as "your savings" gives you "your own guarantee" rather than others, but actually you might not live long enough to get all of them back (esp if you get them by installments) while the money is going back to help the rest of the society.

Another speculation I have is that this EPF system emulates the British rather than being some Asian thing. Coz I see Sg, HK both uses the same EPF scheme too. Anyone?

[windy_city]

Another speculation I have is that this EPF system emulates the British rather than being some Asian thing. Coz I see Sg, HK both uses the same EPF scheme too. Anyone?

I think the EPF scheme started from British is true.

Actually, social security system started in Germany in the end of the 19 century.

You can get your EPF in one lump sum if you buy a house or pay your children education.

About the EPF and pay-as-you-go system, I think it is still an Asian thing. The pay-as-you-go thing will not succeed in Asian countries for sure(at least for now). Not that Asian people is short sighted, but the culture is different, and the EPF scheme is already "an integral part" of the culture, try to launch pay-as-you-go scheme back home, and for sure you get rejection from almost everybody. As for now, I think "I want my money" scheme is more appealing than "let share my money" in Malaysia(and other asian countries too).
Any suggestion ou opinion?

[weich]

hmm....not so sure about the social security system in the US but I'm assuming you're talking about the welfare system common in the "Western" countries.....

Ok, so after knowing how much you get taxed here in the UK and experiencing their social services like the NHS (National Health Service) and their museums, it's like a "you get some, you lose some" kinda situation.

Take for instance the welfare system in the UK:

1. NHS....the British govt injected about 3 billion pounds into the NHS in the year 2000 if I'm not wrong....and up to now...there don't seem to have any significant improvements...waiting times are still amazingly long...don't be surprised to make a call to the NHS saying you're very sick and can't get out of bed...and they said "Ok, your appointment's on {date which is 2 weeks later}" But the good thing is that it's FREE!

2. Plenty of beggars and homeless ppl around on the streets...all seem to be pretty knowledgable - reading books and putting a hat/container on the street expecting to gain sympathy like that, not that there are no shelters for the homeless....but these are the ppl who are involved in drugs and also alcoholism....hence, sometimes they have to be booted out after staying in for 2/3 months

3. Good museums and well-preserved national landmarjs, pretty well-funded.

4. Cheap education for locals - paying only 1000 pounds/year for a quality education (although will change to 3000 in the year 2006) as opposed to foreigners who have to pay min. 13000/year in a London university.

You can see it actually kinda balances out....it's like a you can't get the best of both worlds kinda thing. Now look at my Malaysia from my view:

1. Health service: Long waiting times, but FREE! Free jabs as well....got my Meningtitis jab there for free w/o queueing, not because of connections but b'cos very few ppl know. The ones that can afford it normally frequents the private health service....so there's kinda like a balance but still a shortage

2. Beggars/Homeless - still a few here and there, either disabled or too lazy, mostly if not all illiterate. No govt homeless shelters but there are "homes" for the disabled/old/neglected.

3. Museums are OK, not as many as in the UK but pretty well-preserved. Natural forest reserves/islands are well-preserved (good examples would be Endau-Rompain Nature Reserve and Sipadan with a strict rule on how many visitors are allowed in a year to minimise disturbance to the eco-system, Fisheries department and Environmental Ministries exist with laws on logging, etc)

4. Cheap education for all....~RM1000/year for a university education.

From the looks of it, we are not doing that badly even with an EPF system like ours, is there a need for a welfare system like the ones in the UK in Malaysia? Taxes and gains from investments thru' the EPF are pretty well-spread in the use of governing the country but of course not perfect.

And in a developing country where ppl's main concerns are improving one's standard of living and their closed ones, and doing so by working hard to earn more money is hardly a crime, in fact one of the main driving force of the nation's economy. Also personally when I see beggars on the street who has legs and arms and also can read, I don't see why they deserve any money from the welfare system.

[windy_city]

I understand what you say, but we were comparing the EPF system that make you save for your own future, to the US Social Security System that work "pay-as-you-go". You might be surprise, western system is not all the same, take UK and US and compare it, it works on totally different system.

The pay-as-you-go (US social security system) deducts money from your paycheck to support the old people (retired people), for example, the money is used for the Medicare program. Mean other people support you when you are old; you support others when you are working.

In UK, HK, Malaysia, Indonesia, Mexico?? (and a lot of Asian country) EPF is used to support the retired people. Mean you save for your own future.

The question is, which system works best or do you think it depend on country??

[chenchow]

I don't know too much, but I think SOCSO comes in to play in this issue as well right?

http://www.perkeso.gov.my/english/introduction.html

Its corporate goal:-
To provide comprehensive social security protection for Malaysians.

[windy_city]

I don't know too much, but I think SOCSO comes in to play in this issue as well right?

http://www.perkeso.gov.my/english/introduction.html

Its corporate goal:-
To provide comprehensive social security protection for Malaysians.

I thought SOCSO is a kind of insurance for worker.

[chenchow]

it is more like medicare right?

[windy_city]

it is more like medicare right?

Not at all, you will not get compensate with Medicare if you had an accident when you work. You can only get the benefit (usually health bebefit) when you are old enough (over 60), but usually people wait till their retirement age to get the benefit of Medicare.

I am not sure on how the SOCSO works, but I think it will compensate you when you had an accident or something like that in a workplace right. I think SOCSO is not really related to social security system. It is just a social insurance for workers. There is no age limit on when can you enjoy the benefit too, it there for you when you are in some form of misfortune.

[__earth]

I don't think SS works. It places the burden of retirees onto the younger generation.

Right now, the the baby boom generation is getting older and thus the demand for health benefits will increase. And unfortunately, the current fund is not enough to support the baby boom generation.

The only ways out to this problem is tax the younger generation more or scrap SS altogether by replacing it with a mutual fund or something else. And if I were to stay in America, I don't want to be taxed more for somebody else's benefit due to the government mismanagement.

Funding your own retirement accont makes hell more sense than the current pay-as-you-go system in the US. I think the problem is historical, i.e. when it first started, the US wanted to support it's elderly immediately (I don't think the very first receipents of SS contributed towards their retirement).

It is however, important to have a mandatory retirement scheme because otherwise, people just don't save (especially true in the US). Furthermore, pension funds often get better returns than personally self-managed retirement funds because there are more professionally managed and also there is no personal greed to act irrationally (like putting a tons of money into equities when the stock market is shooting up).

The late Nobel laureate, Franco Modigliani (and colleagues) did a study on this. You can read their paper at http://web.mit.edu/francom/ssecurity/

[Schye]

Funding your own retirement accont makes hell more sense than the current pay-as-you-go system in the US. I think the problem is historical, i.e. when it first started, the US wanted to support it's elderly immediately (I don't think the very first receipents of SS contributed towards their retirement).


I think the system pas-as-you-go in US is same as Japan and this system ONLY work with the basic logic that there are more people who pay than those who take. This has become one of the biggest problems in Japan now as the percentage of not working elderly is increasing because of the long life span of Japanese and fewer babies due to the high living cost. Japanese government is carrying a big amount of debt from their citizens who are holding government bonds. Hence I think buying your own insurance and have a nice financial planning with EPF in Malaysia will work fine for us.

Do you know what is the required EPF contribution in Malaysia?

For the US Social security (and medicare), it's 7.65% (with your employer paying the same amount, making the total contribution 15.3%). The terrible thing about the SS system is that you don't really know how much pension you will be getting (if any).

[jiinjoo]

I think the system pay-as-you-go in US is same as Japan and this system ONLY work with the basic logic that there are more people who pay than those who take.
Yes that's true - but in the US, because of the 20-year baby boom cycle, some years they will have no trouble while other years they will have less money to spare. In Japan, it's just steady increase of old people so each of them gets less and less steadily.

One interesting thought - is there a way to not move away from the SS system, but make sure that you get benefits in proportion to the amount you contribute? One (rather lousy) idea is to take the list of people requesting for assistance, rank everyone's contribution, and then pay them in proportion to the amount they contributed, so that those who contributed more will be given priority, but those who contributed less will be given some too. Or maybe some other mechanism...

http://allmalaysia.info/msiacommerce/resources/

This website says that employees contribute 9% and employer contribute 12%. Started in 1951, it was used for up to 58% of local financing predominantly in large-scale government projects. Withdrawal age is still at 55, dividends paid annually.

One interesting thought - is there a way to not move away from the SS system, but make sure that you get benefits in proportion to the amount you contribute? One (rather lousy) idea is to take the list of people requesting for assistance, rank everyone's contribution, and then pay them in proportion to the amount they contributed, so that those who contributed more will be given priority, but those who contributed less will be given some too. Or maybe some other mechanism...

Actually, I believe that in the SS system, your benefits are proportionate to your previous contributions. However, we still have the current generation paying for the retiring generation, for which they paid very little SS (only 1% back when it started).

Even then, because the working population is still sizable, there are SS surpluses. Uncle Sam, nevertheless, always tends to dig into the SS surpluses to cover part of its budget deficits. Lesson: It's always easy to spend the money of others.

As Pres. Herbert Hoover puts it, "Blessed are the young for they shall inherit the national debt." (Current national debt of each US resident: $20,000 and growing.)

[jiinjoo]

Deficit spending IS definitely the trend. Averaging the number like 20k per US citizen is hardly revealing to the actual problem. Having the current young pay for the old is OK, and it's uncle sam's problem when they go dig SS to cover for "security".

What I'm proposing is that we find YASSS (Yet Another Social Security System). I'm trying to see if there can be a beter way to ensure that everyone in a country (not necessarily US) can life comfortably, but the level of comfort should be comensurate to the price a person pay.

In effort to lessen the burden on SS, uncle sam allows you to have some tax breaks on IRA and 401 k accouts. Any financially prudent person in America shouldn't even think of relying on SS.

BTW, if you work in the US, it's a might be a good idea to contribute to the IRA (you can withdraw it even if you don't plan to retire in the US). If you are in the 15% tax bracket or lower, there's little reason not to put your savings into the Roth IRA.

For more comprehensive info on the Roth IRA, see http://www.fairmark.com/rothira/