Social Security Reforms: Implication Of Reinvesting Social Security Surpluses In Favor Of The Beneficiaries Essay
Social security has been adopted as a policy and programme of government to secure and provide for needs of the aged, disabled or those who are financially disabled. In the United State of America, the social security programme of the country has being on for 70 years now. And it is considered by scholars and their likes that it is the most successful programme in U.S. history (Smith, 2005). Social security top most agenda of the US. And, it is one that has incurred rigorous debate. Thus, it has become increasingly politicized in contemporary times. Many politicians now use social security issue as an item for political campaign and manifestos display. Hence, promises are made on ways and pattern to reform existing social security programme in fashion tat would make it more beneficial to the beneficiaries. Social security has been synonymous to nomenclature such as Old Age, Survivors and Disability Insurance program. But as Smith (2005), rightly puts it, the program is broad and not just for retirees. It is an insurance program, one that provides insurance against a destitute old age and also protects survivors and those with disability. “Social security provides benefits to retired and disabled workers and their dependents and survivors; social security provides assistance to the needy, aged, blind, and disabled” (Horst, 2001).
Government has over the years allocated huge public funds for the administration of social security. For example, in US 1996 fiscal year, Social Security Administration (SSA) had expenditures totaling $386 billion; almost one-forth of the United States $1.6 trillion federal budget. And in that year over 50 million beneficiaries nearly one out of every five individuals in the country- received benefits from SSA each month, and the numbers have been steadily growing (ibid). The scale of social security is huge: nearly 500 billion dollars shared by over 47 million social security benefit was $926 in 2004” (Smith, 2005).
Social security constitutes a major source of income for most retirees. For those with lower incomes, nearly three quarters of their total income comes from social security. And a third of all without social security (ibid). Social security has been of an immense benefit and thus advantageous in making the aged and senior citizens maintain their dignity and hence, make them to depend less on financial support from their families. Also, widows, dependents and disabled persons condition of living have being uplifted with no cause for them to go on wanting.
The administration of social security has come up with certain problems that make many people to call for the reform to the current programme in the United States. According to Steiner (2005), social security the nation’s paternalistic retirement program has a two- part-financing problem. The first component is the imbalance, which pertain to the amount of money the system takes and spend on social security. Here, projected revenues and expenditures are not in balance. The second component is the surplus, which is derived from the tax revenue on social security. Today, the government takes in more social security tax revenue than it spends, which create surpluses. The government invests the current surpluses in special – issue government bonds and spends rather than invests them. The situation of things s made current financing arrangement lowers savings and raises the national debt, instead of potentially increasing national savings, which could fund the benefits for future retirees.
A as way out of the problems facing social security in the United States, it is suggested that social security surpluses should be invested in private securities rather than government bonds. This would effectively remove trust fund assets from the unified budget and force Congress to get along without them. This approach is suggested to preserve social security’s current defined benefit structure. The advantages associated with private securities trust fund; include: first, it would increase expected returns on trust fund assets, potentially increasing national savings. The higher investments risk associated with private securities would be spread over all program participants. Also, benefits would be payable to participants as intended, rather than leaking out of the program to serve other purposes. It then become necessary to avoid exorbitant increases to payroll taxes in the future and resolve both the imbalances and surplus problems, it may make sense to invest social security assets in private investments or reduce future benefits and encourage individuals to save more themselves (Steiner, 2005).
But the disadvantage associated with the above approach is that the government would select the private securities. Defenders maintain that government involvement could be mitigated by investing the trust fund in indexed mutual funds selected by an independent board of trustees charged with representing the interests of program participants (ibid).
Pay-As-You-Go financing with adjustments is another option to be adopted in reforming the existing social security. “Chile, the first country in the world to shift from a pay-as-you-go defined benefit social insurance model to a funded defined contribution model” (Rix, 2005). This approach involves the financing short falls ahead to bring tax rates and benefits into balance within social security’s current structure while avoiding significant surpluses. The pay-as-you-go financing with adjustments had the advantages f simplicity, but it could come at the cost of relatively steep increases in taxes or significant reductions in benefits or both (ibid).
Using the adopted reform of social security in United Kingdom as a referral point, the Voluntary Carve Outs (VCO) in the United Kingdom has a defined benefit and a defined contribution plan as the alternative to social security. “The United Kingdom is the only high- income country that allows VCOs with the worker establishing an individual account defined contribution plan” (Blake, 2005). Under the VCO programme in the UK, workers can ‘contract out’ of social security, replacing part of their social security benefits with private pensions, either through a defined benefit plan or, since 1988, an individual account defined contribution plan. In the VCO programme, the UK government receives and disburses contributions to individual accounts; it does not have a record keeping function for the VCO accounts. Rather, the government serves as the record keeper for the entire system. Here, each worker has an account with the company managing the investments of the VCO, usually an insurance company. Workers must contract with an insurance company to receive the annuitized benefits. The workers are responsible for investigating the prices charged by insurance companies (ibid).
A VCO account differs from the traditional social security benefits in the sense that VCO account is like a loan from the government because the workers accept reduced future socials security benefits in exchange for the diversion today of socials security of the assets between contributions to an individual account and reductions in future social security benefits are a key aspect of the structure of VCOs because they affect the decisions workers make as to whether to take the VCO.
The need to make reform to existing social security program, in order to better the lots of beneficiaries, brought about this research study. Thus, the study would focus on social security reforms: implications of reinvesting social security surpluses in favor of the beneficiaries. The United State social security program would be the case study for the research work.
1.2 STATEMENT OF RESEARCH PROBLEM
The following are those problems that underline the study which the research study intend proffering solution to:
Social security administration is bedeviled with an imbalance in the amount of money government collect as tax for social security and the actual amount that is spent for beneficiaries of social security. This imbalance has led to growing shortfalls in the out-years of social security administration. Hence, projected revenues and expenditures are not in balance. How could administration of social security be administered in order to make a balance between collected tax (revenue) and expenditures on social security?
As a result of imbalance between expected revenue and expenditures, there are surpluses in accumulated fund not disbursed. How would these surpluses be invested in order to further better the lot of beneficiaries of social security?
The current social security leaves the beneficiaries with no room to make choice on how and where to invest for their future benefits. Unlike the case with the Voluntary Carve out (VCO) program of the UK, where the beneficiary has the choice to make decision on which insurance company to manage their securities, the social security as being practice in the US demands for mandatory account. Workers in VCO have the choice to make many decisions, which affect their lives unlike the social security.
Lower income workers are restricted only to social security, unlike those in upper income level. Thus, they bear more risk averse concerning the investment of their retirement savings than upper income workers. And the lower income workers have no room for the diversification of their source of retirement income.
1.3 OBJECTIVES OF THE S TUDY
The following under listed are those objectives, which the research study tends to attain.
To proffer the best method on which the reinvestment of surpluses in social security, that would be of immense benefits to the beneficiaries and safeguard the programme to last and be capable to meet future demands in the ever-increasing beneficiaries of social security.
To determine ways of reforming social security administration that would make beneficiaries have room to make choice and be in position to make decision that would best benefit them
To determine ways in which the imbalances of revenues generated for social security and the expenditures made are balanced in order to make the programme more effective and beneficial to stakeholders.
To determine the implications of reinvesting surpluses of social security in favor of the beneficiaries.
1.4 SIGNIFICANCE OF THE STUDY
The importance of this research work includes:
The study would enable government know ways of investing and administering surpluses in social; security so as to better the lot of the beneficiaries and improve on the effectiveness of the programme.
The study would also enable government to know ways of administering social security so as to remove any form of imbalances that would prevent proper forecasting and future plan on social security programme.
The research work would also enable beneficiaries of the social security programme to know ways and roles they would play in order to improve their status in the programme.
The research work would contribute to the body of knowledge. Researchers on the same field of study can make reference to this study in course of further research work.
The research work is significant in the sense that it would contribute to social concern and the ways of further improvement on social well-being of the masses in a state.
1.5 RESERCH METHODOLOGY
1.5.1 Research Design method
The survey research design would be used in conducting this research work. A survey design is a research method where data are collected from a defined population to describe the present condition of the population using the variables under study. “Survey design does more than merely uncover data. They interpret, synthesis and integrate these data and point to implications and interrelationship” (Bankole, 2003:15). Since the subject matter for this study is a social issue that affects a large group and the generality of people, the survey research method becomes most feasible and more appropriate in the conduct of the study.
1.5.2 Subjects for the study
The total population for this study would constitute the majority of beneficiaries of social security especially those in the United States. Since they are the users and direct stakeholders in social security, it is appropriate that they constitute the subjects of the study. Also, government workers in agencies that administer social security policies would constitute subject for the study. These two groups become appropriate as the subject of the study, because they have first knowledge on how social security is being administered and they partake in the outcome of the implemented programme.
1.5.3 Sample Size
The sample size, i.e., the number of subjects top be i8ncluded for the study would comprise of 100 respondents. 70% of the respondents, constituting 70 people, would be those who are beneficiaries of social security. While 30% of the respondents would be workers and other people that have direct link with governmental agencies that administers social security. The categorization of the subjects for the study in the above giving proportion becomes appropriate, since there are greater numbers of beneficiaries of social security than the workers administering the programme. The number of sample size is adequate because it could be properly managed and data derived would be adequately analyzed, than larger sample size.
1.5.4 Sampling Method
The quota sampling method would be used in selecting the subjects for the study. Quota sampling is a non-probability sampling method, a form of accidental sampling done in line with quota or strata in the total population. According to Odiagbe (1999:48), quota sample is selected in such a way that various components appear not only in proportion to their sizes in the target population but selection is stopped as soon as enough of the sub-group is selected. The quota sampling method is adequate for this study since there is a placement of quota selection on those to form the research respondents. Also, quota sampling being a non-probability method would make the selection of the respondents for the study to be easy. Anyone can be included in the group selection, so far the number of selection do not exceed the 70-30 percentage ratio apportioned for beneficiaries and workers of government agencies for social security administration.
1.5.5 Data Collection Methods
In the course of conducti8ng this re search, both primary and secondary data would be utilized.; the primary data would be generated from self administered questionnaires to the respondents. The questionnaires would contain two sections. Sections A,, would have the bio-data of the respondents, while section b would have questions relating to the study and the research questions. The questionnaires would be sent through e-mail and postal mail to reach wide areas and prevent the restriction of selecting the respondents to a particular area. This would also save cost of reaching respondents in distant areas. The choice of choosing questionnaire as an instruments for data collection boils to the fact that it would allow for ease in data collection and also position the respondent in a calm atmosphere, devoid of threat and victimization when giving answers to the questions. Also would be secrecy and protection of respondent privacy when questionnaires are administered. Linkert 5 scale measurement would be used to grade the answers given b y the respondents. Below are the grade apportioned to each answer given
Options Apportioned score
Strongly agree 5
Strongly disagree 1
The secondary data would be used in deriving data and comparing previous findings and drawing conclusions for the study. The secondary data would be derived from journals, textbooks, newspapers articles, Internet materials and government gazettes.
The topic of this research study is ‘Social Security Reforms: Implication Of Reinvesting Social Security Surpluses In Favor Of The Beneficiaries’. From the topic the independent variable is ‘ Social security reforms’, while the dependent variable is ‘ the implication of reinvesting social security surpluses in favor of the beneficiaries. To operationalized the topic, we say, the implications derived from the r e investing of social security surpluses in favor of the beneficiaries is a function of the level of reforms made on the existing social security policy. In other words, the implications that are obtainable from the reinvesting of surpluses from social security to favor the beneficiaries, this is determined by the outcome of the type of reform carried out on current social security policy. For instance, if no thorough reform is carried out it means the level of change would be minute, thereby resulting in the status quo of modus operandi.
1.7 DATA ANALYSIS
The quantitative analysis method would be use for the analysis of the data for the study. Chi-square (X2) would be used in testing the r e search questions. The formula for the chi-square (x2) is:
Where ‘O’ represent the observed frequency
‘E ‘ represents the expected frequency.
The decision rule for the chi- square (X2) include:
Accept the null hypothesis (h0), when the calculated value of X2 is lesser than the table value of X2. Hence, reject the alternate hypothesis (H1).
Reject the null hypothesis (H0), when the calculated value of X2 is greater than the table value of X2. Hence, accept the alternate hypothesis (H1).
The findings of the research study would be derived based on the conclusion reached from the statistical analysis carried out.
1.8 ETHICAL CONSIDERATIONS
The ethical considerations to be put in place in the course of conducting this research work include the following:
1. The data for the research work would not be falsified. Hence, it would be generated based on the actual response the respondents give.
2 the privacy of the respondents would be protected; any given information would only be utilized for the conducting the research study.
3. All used secondary data would be adequately referenced in order to prevent plagiarism.
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