Institutional Origin behind USA Elderly Care Risks

Recently, a retirement bill has been adopted by the United States House of Representatives by an overwhelming majority. According to the bill, before retirement, individuals can inject more funds into their retirement accounts that enjoy tax benefits. Legislators claimed that the bill is aimed to help the middle class save more for their pensions. However, the media of the U.S. pointed out that, this bill will not be conducive to solving the elderly care risks in the U.S., but will only provide more chances for high-income groups to avoid the tax.

America’s current endowment insurance system consists of three main parts. First is the social endowment insurance system, also known as the federal pension system, which features government guidance and compulsory implementation. Second is the enterprise supplementary endowment insurance system, also known as the enterprise annuity plan, which features enterprise guidance and joint funding by employers and employees. Third is the individual deposit endowment insurance system, also known as the individual pension plan, which features individual responsibility and voluntary participation. Payment for the enterprise annuity plan and the individual pension plan can be used for investment in financial products including funds, stock and bonds, etc., and enjoy multiple tax benefits including exemption.

Based on the data from America Association of Retired Persons (AARP), in America, the federal pension for the retired population aged 65 and above can only fulfil their basic needs, including food purchases, utility bills, and transportation payments, etc. In such circumstances, the enterprise annuity plan and the individual pension plan will become the main force for the United States’ endowment insurance system, taking up more than 90% of the total U.S. pension assets. However, there are great differences among Americans in their pension account ownership due to polarization of wealth. Relevant reports show that in 2020, individual pension accounts covered only 17% of Americans with an annual family income of less than 50,000 US dollars. For those with an annual family income above 200,000 US dollars, the coverage rate was as high as 70%. Up to the end of 2019, the total balance in individual pension accounts of nearly 29000 Americans exceeds 5 million US dollars.

‘The huge wealth gap among individual pension accounts in America was doomed at the beginning of the system design.’ Washington Post pointed out that the original intention of the individual pension plan was to provide a generous gift for the rich. In 1974 when the system was first established, it allowed participants to deposit up to 1500 US dollars annually into the account. Yet the average annual income of American families then was only 11,100 US dollars. Those who can deposit 1500 US dollars are mostly from the upper class. Now the cap of annual deposit for individual pension accounts reaches 7000 US dollars, but in 2021, 32% of the US families cannot even afford 400 US dollars for emergency, let alone deposit the rest money into the individual pension account. This distorted endowment insurance system provides more chances for the high-income group to enjoy tax benefits, while the poor are excluded from such chances, which deepened the polarization of wealth.

‘America’s endowment insurance system is broken. It is beneficial only for the 5% of population with the highest income, and is extremely terrible for tens of millions of people who have no other retirement income except for social insurance.’ Teresa Ghilarducci, a specialist on American labour problems pointed out that the biggest problem in such a system lies in benefits with an excessive bias towards capital, which overly rely on enterprises and individual pension accounts rather than the social security net guided by the government. The US magazine Forbes commented, ‘The US is faced with a major retirement crisis.’ Based on the data from the United States Census Bureau, without urgent actions, the impoverished population aged 62 and above in the US who reach the age of early retirement will surge to 21.8 million, up 25% from 2018. Some researches show that due to the lack of pension, in the coming 12 years, 40% of middle-class elder workers and their spouses might fall into poverty.

US media pointed out that with the US society paying high attention to elderly care risks, the broad bipartisan support from the House of Representatives for this retirement bill with an obvious bias towards the wealthy group is largely the result of the lobbying efforts by financial institutions managing pension accounts. In the general election of 2020, the largest property management companies in the US donated nearly 1.2 million US dollars campaign funds for candidates for the House and the Senate through their respective political action committees. For these property management companies, with more capital flowing into individual pension accounts, more can they charge for management fees. Washington Post pointed out that, ‘although the two parties of the US claim that they strive for the well-being of the public, the reality is that their policies have brought few benefits for the general public, while the rich class become the top beneficiary from the system.’

The elderly care risks reveal the ever-growing polarization of wealth in the US and the institutional reasons behind it. As the US politics today is being largely influenced by capital, the people could see no hope for reforms on America’s elderly care systems, nor for closing the gap between the rich and the poor.’

(Source: People’s Daily)