Pension Provision in The United States

Abstract

The US retirement income system relies on two big pillars: on the one hand the public Old-age, Survivors and Disability Insurance (OASDI), also called “social security”, and on the other hand private pension arrangements. The social security system is based on the insurance principle. Social security is not trivial, as it covers approximately 96 per cent of jobs in the US. Coverage has expanded quite rapidly and social security spending as a share of GDP has doubled between 1970 and 2000. Benefit payments in 1996 represented US$305.2 billion¹, or approximately 4.59 per cent of US GDP. In 1994 91 per cent of elderly households received social security income. In 1996 43.7 million people received monthly benefits. But also at the individual level social security represents a major income source. Calculations from Diamond and Gruber (1999) illustrate that for 16 per cent of households social security represents the only source of income. Furthermore social security represents more than 50 per cent of income for three-fifths of the beneficiaries aged 65 or older. None the less the system is distinctly smaller in size than its counterparts in most continental European countries. In Germany for example the public retirement systems accounted for approximately 13 per cent of GDP in 1995. In Belgium the figure was approximately 10.6 per cent for the same year.