Look to countries that have private accounts, and the risks appear as real as the promise. High fees overwhelm excellent returns in Chile. Shady claims about returns plagued Britain's scheme. Singapore's plan leaves many asset-rich and cash-poor. Even Sweden, with its relatively sound system, is considering changes to encourage greater active participation in private accounts. Overall, the experience abroad seems to serve up this lesson: no one gets it right on the first try. --By Jyoti Thottam
How It Works Wage earners must contribute 10% of their pay to one of several government-approved private funds. Those accounts replaced the old state pensions, but the government still pays a base sum to poor retirees. At first, employers were required to raise wages so workers could afford the 10% pay-in.
Upside The 10% annual returns on the funds have exceeded expectations, and the investments have helped spur economic growth.
Downside High management fees have eaten up investment gains for many retirees. Benefits for older pensioners still in the former system plus the cost of pension guarantees account for 25% of Chile's national budget.
How It Works The government gives incentives to encourage workers to sign up for private accounts or convert part of their state pensions to privately managed funds. As government retirement benefits were cut, the private plans gave workers another way to fund their retirement.
Upside The government was able to hold spending on pensions to 5% of GDP.
Downside Individuals saw few gains. In a vast scandal, private pension firms exaggerated expected returns, and they were forced to pay $24 billion in damages. With little faith in the system, workers contribute to private accounts at a relatively low rate. Experts are worried that more retirees will end up poor.
How It Works Out of an 18.5% payroll tax, shared by employees and employers, 2.5 percentage points are diverted to private accounts. Workers have 633 funds to choose from, including a default for people who don't indicate a preference. Withdrawals can begin at age 61.
Upside Workers exert almost total control over their private accounts but still have the protection of the state system and employer pensions, which provide the bulk of retirees' income.
Downside Choice can be confusing. After an initial burst of enthusiasm for picking their funds, most Swedes now opt for the default, which has outperformed the average individual portfolio and has lower management fees.
How It Works Essentially a mandatory national savings program, the Central Provident Fund uses a hefty payroll tax, 33%, to fund retirement, medical expenses, education and housing. Workers can withdraw retirement savings at 55 after they have saved a certain amount. They can draw against the other accounts as they wish.
Upside Singapore has one of the highest rates of home ownership in the world, 93%, and the retirement system puts little burden on the government.
Downside Investment options and choices are very limited. The temptation to withdraw money early leaves some Singaporeans with relatively little cash for retirement.