Social Security was designed to correct this myopia, forcing people to set aside funds to protect themselves from loss of income on retirement, disability or death of a breadwinner. Low earners who found the temptations of current income stronger than the desire to save for future contingencies would take the payroll tax cut Moynihan offers and eventually suffer cuts in Social Security benefits averaging roughly 30 percent. Employers also would have to keep track of each change of plan that every employee would be free to make. Workers would likely experience high administrative costs and might encounter some financial wrongdoing, if the experiences of Chile and Great Britain, whose systems Mr. Glassman extols, are any indication. The Chilean system is overrun by wasteful selling costs of approved plans.
Noncompliance is rampant.
A recent study of British private accounts reports annual administrative costs running 2 percent of the amount invested. Furthermore, many administrative costs do not vary with the size of accounts, meaning that the bite would be particularly severe on small accounts. At present, people who want to convert their savings into annuities so that lifelong payments are ensured must pay U.S. insurance companies fees averaging 20 percent of what they have saved. Apart from the high administrative costs of individual accounts, one needs to remember why we have social insurance. It is to ensure that people have a reliable income floor when retirement, death or disability cuts their earnings and that this income bears some relation to what they previously earned.