Chile's Pension System Gets High Marks

[Rose Siding]

SANTIAGO, Chile -- Instead of paying social security taxes and wondering whether the government will ever deliver promised retirement benefits, Chilean workers bankroll their own retirements and manage their nest eggs.

In visits to modern customer service offices as common as bank branches in this city of 5.5 million, they move money from one stock and bond fund to another and use ATM-like machines to make sure that monthly salary deductions go into pension savings.

Two decades after Chile's military dictatorship scrapped the country's broken and bankrupt government-run social security system and replaced it with privatization, forced retirement savings by everyone who gets a regular paycheck is a way of life.

Chile's pension system is hailed as a model for the world because workers fund their old age pensions, though critics point out that it doesn't cover the self-employed and legions of workers who float from job to job and contribute infrequently.
...
"I'm not in it and probably never will be," said Ignacio Ibacache, 47, who makes about the monthly minimum wage of $207 taking pictures of tourists in front of Santiago's central cathedral.

In his hip restaurant in a bohemian part of Santiago, Rhony Castro knows he should be contributing but hasn't for years.

"There's always some crisis that comes up in this business, so I just say 'I'll get through this one and start contributing,' but I never do," said Castro, 48. "Most small businessmen here work until they die, and I'll probably be one of them."

http://www.newsday.com/news/nationworld/wire/sns-ap-social-security-chile,0,506438.story?coll=sns-ap-nationworld-headlines

Chile Official Guides Privatized Pensions
SANTIAGO, Chile -- As a 30-year-old economist, Jose Pinera revolutionized Chile's pension system in 1980 while he was secretary of labor and social security during the country's dictatorship under Gen. Augusto Pinochet.

Pinera, the architect of the country's privitized system, is now an internationally-recognized advocate of replacing government "pay as you go" social security with private pensions where workers bankroll their retirements with investments in mutual funds.
...
AP: Chileans of all classes seem to lack knowledge or interest determining savings needed to reach retirement goals. What is the extent of this problem and how can it be overcome?

Pinera: I do not have a definite assessment on this since it is a highly empirical issue. Now, it is true that it is part of Latin culture leaving things for the last moment in every aspect of life. Of course, the government, the (fund administrators) association, modern trade union leaders, etc., should do more to create a culture of responsibility in societies that have had a weak one for 500 years. And it takes time. What is absolutely clear is that a defined contribution system, or capitalization system, clearly encourages responsibility, while a defined benefit system, whether government or private, clearly encourages indifference.

http://www.newsday.com/news/nationworld/wire/sns-ap-social-security-chile-qa,0,3120949.story?coll=sns-ap-nationworld-headlines

Got that? Chile does it like capitalists. We do it like, um, jerks :shrug: Bet we'll be hearing lots more about the bushies' new best friend.

[rooboy]

1. According to Krugman the Chilean system is a disaster...

he pointed out in an interview with Bob McChesney that the article doesn't give any FIGURES. Apparently the costs (read 'profiteering') of administering these pension funds drain almost 50% of the money out of them.

[Lithos]

2. This is pure crap

Read here:

http://www.owlnet.rice.edu/~poli354/Chile/970321_Pensions.html

A closer look at the Chilean system does disclose some weaknesses. With regulation effectively forcing the AFPs to pursue me-too investment policies, competition is driven in wasteful directions.

Just as U.S. banks used to give away toasters to attract new accounts, AFPs employ armies of salesmen and pour on extraneous services. Provida, the largest AFP, with some 1.7 million accounts, "never forgets my birthday or Christmas," said Ms. Perey, the secretary from Santiago.



And while the resulting costs are not absurdly high -- about 1 percent -- customers are paying for annual turnover exceeding 30 percent.

More important, there is an inherent tension between the private pension approach and the government's guarantee of a minimum pension. Since their contributions will not increase the size of their retirement checks, Chileans with low wages have strong incentives to hide income.

Finally, the jury is out on how the Chilean system would fare in hard times. If returns on pension assets fell to disappointing levels, there would surely be pressure on the government to subsidize pensions from other sources.

What success in the Chilean system relies on STRONG regulation. Something that would not exist in the US model given the Puke penchant for screwing the common man. So add that to the mix for disaster.

L-

[rockedthevoteinMA]

3. Didn't Palast talk about Chile being an absolute disaster

in his book? What's great for the World Bank and IMF sucks for the people.

(I thought I read that).

[w4rma]

4. I don't think America needs to model anything after military dictatorships

If a military dictatorship supports it, it's probably because it's something that helps prop up the dictatorship.

[imenja]

7. I agree, but use the past tense

Pinochet relinquished power in the late 1980s. Chile has returned to Democracy and now has a left leaning government.
I think pointing to economic developments from the Pinochet era as some sort of model is patently obscene.

[sandnsea]

5. Disability? Widows and orphans?

What system helps them?

[CHIMO]

6. Where Are The Customer's Yachts

Social Security is solid for 20 years out.
If one wants to understand a little more, then listen to the Dec. 12, 2004 on Media Matters. It might give one a heads up on their own future.

http://www.will.uiuc.edu/am/mediamatters/