Chile offers experience in risks, benefits of privatizing Social Security

[Rose Siding]

WASHINGTON - Chile scrapped its bankrupt Social Security system in 1981 and replaced it with personal retirement accounts like those that President Bush is proposing for Americans.

Today, Chile's experience offers Congress and the Bush administration three important lessons:
- It's terribly expensive to move to a privatized retirement system.
- It's dangerous to let the private sector manage retirement funds without close regulation.
- Privatized pension funds can bring retirees higher returns than they'd get from the government.

When Chile scrapped its old system, it faced the same problem the United States has: It eventually would owe retirees more than it could reasonably expect to collect in taxes from active workers.
Chile, then a right-wing dictatorship, essentially forced citizens to be savers....
...
On another matter, Bush and Chile's former labor minister may both be wrong. That's the idea that privatizing retirement gives workers what Bush calls an ownership mentality about their assets.
Not so, according to a University of Chile study. It found that more than half of workers didn't know what percentage of their wages was going into the plan. Nine out of 10 didn't know how much their plans' fund managers were charging them.

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