Both have economies of scope many mutual fund

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both have economies of scope. many mutual fund management companies taken over by other financial institutions like life insurance companies. B. The U.S. is considering reforming social security. Switzerland and the U.K provide two different models. Read “Swiss embrace stocks to buoy Social Security” (Item 10.1) and “Social Security switch in U.K. is disastrous…” (Item 10.2) and answer the following questions. i. Is Social Security a funded plan? How does it work? Why does Social Security currently have funds to invest? Funded- it is funded if there are assets held now to cover future obligations. How there’s a fund if it’s not being funded- if current working population is greater than amount of old people 10/7/2019 4
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Social security is funded by a tax placed on all people who work in the United States. Social security tax is divided equally between employers and employees. o Social security benefits to a retiree are based on their earnings history – the higher his or her lifetime earnings, the greater the benefits up to a maximum. o there is an element of redistribution so lower income workers receive a relatively better deal than high income workers. o social security is NOT a savings scheme. your contributions are NOT invested by the government to provide you with income when you retire. contributions today go to pay the pensions of current retirees. when you retire, your pension will be paid out of contributions of those working then. this is a PAY AS YOU GO scheme. ii. Why are social security schemes in most countries in serious difficulty? The ratio of people currently working and contributing to social security funds to retirees receiving funds is decreasing. Life expectancy has risen steadily so pensioners also collect their pensions for a longer period on average. People have also had fewer children so the ratio of young to old has fallen. *low birth rate, aged population* rising health care costs Social security also has poor incentive effects – any time there is a tax on activity, there is generally less of that activity a tax on labor reduces employment – this is a bigger problem in Europe where social security tax is very high. high taxes also lead to evasion so there is “underground” employment that pays no social security (or other) tax. pension programs also encourage early retirement. lower birth rates, growing life expectancies. iii. What is the nature of the Swiss and U.K. reforms? How do they differ? In the Swiss reforms, the government wants to take the social security taxes paid by currently working people and invest them in the equity market. Doing so will help the AHV earn money and better finance the increasingly burdened social security programs.
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