Shrinking Safety Net; Recession Hurts Pension, Benefit Plans Worldwide

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Byline: John Zarocostas, THE WASHINGTON TIMES

GENEVA -- The global economy's troubles are unraveling public and private social-security networks worldwide, and programs in wealthy nations are the most threatened, international experts say.

Potentially crippling financial losses will require mending the social-security nets that cover millions of people with a combination of pensions, disability, family benefits, injury and compensation, unemployment and sickness insurance.

Further steps to protect people's pension levels may be required, experts suggest, especially if people are close to retirement and their savings portfolios might not recover during their remaining active working life.

One of the consequences of the crisis is that in both the short and long term, the revenue bases of social-security safety nets is contracting, said Assane Diop, executive director for social protection at the International Labor Organization (ILO).

The ILO maintains that in order to protect retirees, a minimum pension based on an assumed minimum rate of return has to be financed and or guaranteed by the state, hopefully for a transitional period.

The Paris-based Organization for Economic Cooperation and Development (OECD) has put the estimated losses during 2008 at about $5 trillion just for private pension funds. Also, an ILO report highlights that public and private funds in the United States lost roughly $1 trillion or about 10 percent of their total assets.

In a similar vein, the ILO says in neighboring Canada, public and private pensions programs have lost, so far in 2009, about 10 percent of their assets - an amount equivalent to about 6 percent of the national gross domestic product (GDP).

In the United Kingdom, pension funds lost roughly 500 billion euros between October 2007 and October 2008, and in the world's second biggest economy, Japan, private pension funds last year reported a loss of 20 percent of their assets, ILO analysts estimate and note the downward trend continues.

A recent survey of 47 social security institutions in 43 countries by the International Social Security Association (ISSA) estimates that pay-as-you-go programs experienced a negative performance with overall combined losses estimated at $225 billion in 2008.

For some social-security funds, the loss represents as much as five years of investment income and around 25 percent of the net asset value of the fund, the ISSA survey said.

However, the study also found that funds of social-security institutions in emerging countries generally notched a better investment performance than those in rich nations, where some funds had high exposure in equities. …