Were national governments to leave matters as they stand now on the social security front, they would be forced to borrow heavily in order to meet the ensuing deficit. By 2050, nine out of the 15 EU member states will have accumulated social security debts equivalent to 150 to 300 percent of their GDP. Given the growing number of reactions to any increases in contributions, sharp reductions in pension payments seem inevitable. In addition, though the workers of today pay for current pension payments, the workers of the future may find the burden excessive and use the power of the ballot box to reduce it. Both state and private pension funds have a further problem, in that they provide a specific sum at a specific retirement age. Given that every decade, 60-year-olds can add one to two years to their lives, this no longer corresponds to reality. Longevity means that the value of pensions rises – and so does the cost of pension payments. Western governments have attempted to deal with the problem, with the USA due to raise retirement ages to 67. But given the rapid increase in longevity for the average American 65-year-old, this reform, to be implemented from 2003 onward, may find the country exactly back where it started. Taxation or savings? Another problem with pension contributions is that employees regard them as a form of tax on their income and not as savings for the future. As a result, many opt out of the system. Germany, for instance, has seen the percentage of freelance professionals contributing to the state system fall from 60 percent to 20 percent of the total during the 1980s. Employees generally do not have the choice of opting out of the system, with the result that many seek early retirement. The OECD has warned that this may prove to be as big a danger to living standards as an aging population. Germany and Italy Even in Germany, employees’ tolerance of high taxation has reached the limits. New provisions have determined that contributions should not exceed 20 percent of gross earnings, to rise to 22 percent by 2030. This amendment essentially leaves the door open for partial private funding of the state pension system. As of this year, Germans will be able to channel 1 percent of their gross income into personal pension accounts. By 2008, this will have reached 4 percent. With generous subsidies toward low-paid workers and people with children, the government estimates that 80 percent of workers will wish to participate. The average pension will also drop to 64 percent of net income from the 70 percent that it is today. Initially met with skepticism by experts, the German system is gaining converts. It is revolutionary in that it introduces the concept of personal savings. Even the unions, which reacted against the reform, have started to set up their own supplementary funds. Italy also hopes to follow in Germany’s footsteps. The state pension system swallows up 14 percent of the country’s gross domestic product. While pensions will no longer be as generous as today, the transition period will be sufficiently long to control the effects. But the reforms will be unfair to those born after 1965, who will have paid more in contributions than the pensions they will receive. The Italian government announced its new proposals at the end of 2001, which provide for withholding 7 percent of each worker’s salary and putting it into private pension schemes. However, the government now allows employers to reduce their contributions by 3 to 5 percent for each new employee. Since these workers will have the right to the same pension as everybody else, the deficit in the pension system will grow larger. Italy has also not laid down a minimum retirement age and appears to be following a dangerous policy of putting off the problem of the existing system’s insufficient funds. But whether in Germany or Italy, the problem remains the same: How can workers be persuaded to increase savings for pensions, so that they can increase their own personal capital? Other European countries Sweden has opted for a reform of its pension fund system that carries with it a low political cost. Social security reserves will be organized into four competitive funds which can invest in property and shares, even abroad. In the past, investment was permitted only in bonds of the Swedish State. Ireland has already begun to invest 1 percent of its national income in a similar fund. France has taken the big step of setting up one fund. But all of these countries are concerned that political manipulation will lead to unwise investment choices. It is greatly tempting to invest such pension funds in bonds. If the experience of the USA is anything to go by, these funds will certainly be subject to political influence.