SECURITY FOR SOCIAL-SECURITY - IS PRIVATIZATION THE ANSWER

The parallels between the funding of an individual pension plan and a paygo social security system are presented. In each plan, the total ex pected value of benefits can exceed the total expected value of contri butions. For the individual pre-funded plan this is true because of th e discount factor, delta, representing investment income earnings. For the paygo social security system, the analogous ''discount'' factor i s denoted tau, the total of real growth rates of the labour force and real productivity gains per worker, that is, real growth in wealth pro duction. The paper then presents arguments to show that a fully-funded social security scheme is no more secure economically than. a paygo s cheme. Both schemes rely on the ability of the economy to create and t ransfer wealth. That is, security for social security does not lie in privatization. The paper also reviews the Reform Party's proposal for a ''Super RRSP'' replacement for social security and analyses its adva ntages and disadvantages.