This book provides an almost overly concise account of the evolution of public and “occupational” pensions in the US, the UK, Canada and Australia, with references to some other countries. Informed and with remarkable precision, in view of their sweeping strokes, the authors portray the context and entire history of these pension plans. Their focus, however, is only on developments since about 1980. The primary theme of the presentation is how a quartet of Anglo-Saxon countries have dealt with the financial stress put on both public and occupational private pension by current trends, chiefly demographic aging. According to the authors, political and possibly also popular resistance to continually higher taxes – or “contributions,” as some Europeans might prefer to call them – coupled with unwillingness to cut benefits further, has led all four nations to turn to the stock market to relieve the financial burden on their pension systems. To avoid having to choose among the three unpalatable alternatives of increasing taxes, reducing benefits and/or raising the retirement age, governments have thus resorted to a fourth option. The authors find that the attractiveness of this fourth way has been enhanced by an ideological preference for “small government” and reinforced as the financial problems of pension systems have become more evident.

This fourth option entails pre-funding pensions in some manner and investing the capital in marketable securities, including equities. Since the yield on such assets can be expected to exceed the growth in total wages that essentially constitutes the return on the implicit assets of pay-as-you-go pension systems, this device should accomplish its intended purpose, thus liberating decision makers from their dilemma. With the higher return on pension-system assets, taxes to finance pensions could remain stable while benefit levels and retirement age could be kept relatively intact. What is the authors' verdict? Wisely they issue none, but instead they point to the weaknesses and strengths of the respective versions of the fourth way chosen by each of the countries studied.

This reviewer's observations are as follows: the experience of the UK policy is that the weaknesses reported have clearly, almost overwhelmingly, outweighed the strengths; in Australia there appears to be stalemate between advantages and drawbacks; as for the Canadian approach, the pluses seem to outnumber the minuses. The authors provide a thorough description of the situation in the US, their home country, but as there have been few changes in Social Security since the enactment of the Greenspan Commission's proposals in 1983, the evaluation is largely devoted to the effects of inaction. Briefly, the development of private/occupational pensions in the US – the disappearing defined benefit plans and the 401(k) plans – are described and discussed. In view of the well-known problems of defined-benefit plans, and the limited coverage and inadequate average contributions of the defined contribution plans, the authors conclude that the problem of future reduction in Social Security benefit levels under present legislation has not been adequately addressed in the US.

Although I know relatively little about US social policy and politics, I will venture to express a view on the subject. It often strikes me how well designed and well suited for the US social and economic situation its Social Security appears to be. Just as remarkably, this harmony between system and setting seems to be little appreciated within the US as well as outside it. Also, the changes decided by the US Congress, especially the timely and prudent increases of the retirement age in the mid-1980s, are evidence of the relative care and skill, compared to many other nations, which the US has generally devoted to its national pension system. To me, the lack of action taken since the Greenspan Commission is in fact a manifestation of this very diligence. The inaction, or deadlock, admittedly poses problems, but these are preferable to those facing many nations that have had the capacity to act. Thus, the financial deficit of the US Social Security program seems troublesome but clearly manageable. Regrettably, that moderate deficit appears to overshadow the much more important benefits of the program for American society. Doctors tend to focus on patients that are sick, and a large number of “doctors” are concerned about Social Security. This widespread attention suggests to the public, to policymakers and to other practitioners that there is a correspondingly serious illness. However, I find the patient generally fit and, with appropriate mild treatment, likely to survive and remain in good shape for a long time to come. If I were asked for my policy advice on Social Security, I would recommend that careful thought and hard work be dedicated to refining this perhaps surprising product of American politics, making it more efficient within its existing structure. Perhaps the main trouble with the market-magic issue is that it has diverted academic, political and popular energy from the unglamorous everyday work of tidying up and improving a piece of comprehensive, complex and significant legislation. Presumably this diversion of energy has been prompted largely by an ideological controversy over public pensions that seems particularly fierce in the US.

One reason why this straightforward book is an intellectual success is that the authors do not try to answer the crucial question whether the fourth way actually exists or is just an illusion of a free lunch around the corner. Many have already more or less failed in that important endeavor. Instead, Alicia Munnell and Steven Sass have described the results, so far, of the different variations of the fourth way taken by several countries with rather similar starting points, anticipated demographic and financial pressures, and ideological concerns. This historical, partly non-theoretical, approach has produced highly recommended reading for practicing pension policy advisers and aficionados around the world.

One reason for the book's success is the authors' thorough knowledge of the issues involved. Their perspective in providing pension policy advice is, of course, that of two US academics and practitioners. Since the academic and political debate on pensions has long been most intense in the US, and since the authors have figured prominently in that discussion, readers should be delighted to be offered their point of view. This is the kind of work for which the public might not mind seeing a portion of their taxes end up in some academic's pocket. This book is probably as close to objective information as you can get.