Personal Finance

Social security explained

Social Security is a government program that was designed to provide for the basic economic security and welfare of individuals and their dependents. Such a system is vogue in many countries across the globe, in one form or the other, but necessarily performing the same basic objective. In United States, the term social security bears two distinct meanings. It specifically refers to the old age insurance system brought into the fore by the Social Security Act of 1935. In a broader sense, the word social security encompasses protection for all citizens against a wide range of suffering, which includes poverty, disability, ill health and homelessness. The funding for social security is achieved through a tax levied equally on employees and employers.

Let us see things in much more detail. The funding for social security has been done mainly for some of these purposes. That is, as an assistance to alleviate poverty, social protection, redistribution and as a symbol of solidarity.

By social protection, one can assume its literal meaning. In fact it is what exactly is meant in this context. That goes much beyond poverty. It includes the hardships that borne out of a drastic alteration in the circumstances. The argument is based on the fact that when a person becomes unemployed or sick, they should not have to leave their possessions or impoverish themselves as the outcome.

Redistribution hints at a form of horizontal redistribution. That is, benefits flows from people who are well to do to people who have less income. In terms of support for the children, the flow happens from people without children to those with children.

Also social security funding is not simply seen as a charity. But it is looked upon as a gesture of mutual cooperation.

The main advantages of social security are:

a) Social Insurance: It is based on the principle that people get benefits, paid while they are at work. On the other hand, this method holds the disadvantage that only those who are working can claim the benefits. That is, it leaves out unemployed school leavers, house-wives, seriously ill and disabled people. Also poor people with a meager earning cannot make the contributions.

b) Means Tested Benefits: It is based on a test of income. Some also let-in tests of capital or assets. MTB are progressive, and is designed so as to have a vertical distribution structure. But it has the disadvantage of being a complex exercise and less reach to the people.

c) Non-contributory benefits: This refers to any non-insurance benefit. It is usually discharged based on a test of need for people with physical handicap, veterans of armed forces and very old people.

d) Discretionary Benefits: There are needs whose occurrence and type are unpredictable. The response to such a pressing or exceptional need is solely on the logic of the agency or officer concerned. Since it is done with one’s discerning ability, it won’t rational always.

e) Universal Benefits: These are non-contributory benefits given to whole groups of a population – like old people or children – without further tests. But its wide coverage makes it expensive.

Social Security is definitely a boon at the time of distress and a helping hand extended to bail out a common man out of circumstance induced hardships. But it has some glaring drawbacks when it comes to addressing certain uncommon scenarios. It is quite evident that the present social security scheme badly requires a revamp in order to help it address the problems and needs of the common man effectively. The extent of its utility is a much debated topic across the world and as a result some reforms are in the offing. Let us hope that the social security scheme gets modified so as to encompass the plight of all the needy citizens in a more effective way.