Pension Insurance System (Chile)

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The Chilean pension system is a state-regulated form of retirement , it was founded in 1920. The pension system in 1980 under the military dictatorship of Augusto Pinochet from PAYG to the funded system changed. Many critics and supporters see the reform as an important experiment under real conditions that provides information about the effects of a complete change in a pension system on the funded procedure. The development was therefore observed with great international interest. In 2008, the Michelle Bachelet government reformed the pension system .

History (1920–1980)

President Arturo Alessandri (1920)

A social security system was introduced in Chile in 1920 , which also included a pay-as-you-go pension scheme. Although 73% of all workers paid into the system up to 1973, the financial resources of the pension funds were low, as almost all workers only made the statutory minimum contribution and many successfully avoided paying pension contributions entirely. The poor payment behavior is mainly attributed to the fact that the individual pension amount depends little on the amount of the pension contributions. In 1980 the pension fund deficit reached 1.8% of the gross domestic product. Furthermore, there was the problem that the pension amount was different for different occupational groups. The differences are mostly attributed to differently successful lobbying of the various professional groups.

Pension reform 1980/81

Military parade on the 9th anniversary of the military coup by Augusto Pinochet (1982).

In 1980, the Pinochet government, under the leadership of then Minister of Labor, José Piñera, converted the previous pay-as-you-go pension system to the funded system. The idea of ​​privatizing pensions first came to José Piñera while reading the book Capitalism and Freedom by Milton Friedman . Various private pension funds have been set up, the so-called Administradoras de Fondos de Pensiones (AFPs). For all citizens who, according to the legal definition, are workers, employers have to pay part of their earned income to the pension insurance. Workers who had already paid into the old system were given an option to continue paying into the old system. The statutory minimum contributions to the new private pension insurance were set 11% lower than the contributions to the old pension insurance, so that as many workers as possible change.

Contribution obligation

All workers and employees must pay into the system. The self-employed are allowed to pay, but do not have to. The compulsory contributions amount to 13% of the monthly wage. The portion of monthly income that exceeds US $ 2,000 is non-contributory. The pension contributions can be deducted from income tax as special expenses.

Members of the military have their own pension program (pay-as-you-go) and are not required to contribute to the general pension system.

Role of the state

The establishment and operation of private pension schemes are regulated by law. So z. B. each pension fund set up minimum reserves. There are also regulations for the type of capital investment. Compliance with the regulations by private pension insurance companies is monitored by a state supervisory authority, the Superintendencia de AFP .

There are state guarantees for the following cases:

  1. The state guarantees the minimum pension to all citizens who have paid into a fund for at least 20 years .
  2. If a pension fund is no longer able to provide the minimum return stipulated by the state, it is liquidated and the fund assets are transferred to other funds. In this case, the state must top up the capital difference to the minimum return.
  3. In the event of the bankruptcy of a pension fund, the state assumes the further pension payments.

The state also pays social assistance , the Pensiones Asistenciales (PASIS), for those citizens who are not entitled to a minimum pension.

Due to the conversion of the system from the pay-as-you-go system to the funded system, there will still be conversion costs until around 2045. Because almost all of the contributions are paid into the new system, the pension entitlements from the old system are almost completely unpaid. The difference is paid by the Chilean state. The state also finances the increase in the pension rights of those citizens who have switched to the new system. These conversion costs put a considerable strain on the state budget:

year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Conversion costs in% of the Chilean gross domestic product 4.10 8.30 7.50 7.70 6.70 6.30 5.40 5.20 4.50 4.60 4.50 4.30 4.50 4.50 4.40

The state subsidies to the pension system (conversion costs, Pensiones Asistenciales, minimum pension) averaged 4.7% of GDP per year between 1981 and 2004. The subsidies were therefore significantly higher than before the reform, when the deficit was "only" 1.8% of GDP per year.

administrative expenses

The pension funds - the newly introduced insurance companies - are financed through administrative costs. The pension funds are not regulated by law with regard to the type, number and amount of administrative costs. There are usually administrative fees for opening an account and for making various changes to an account. Furthermore, part of the monthly pension contributions are retained for financing purposes, as is part of the voluntary contributions. Only the charging of administrative costs for the early termination of the pension fund (for the purpose of changing funds) is prohibited by law.

Proportion of the population with pension insurance and amount of pension

The expected pension amount depends on the performance of the pension funds and the amount of the deducted administrative costs. The management costs of the Chilean pension funds are relatively high. The nominal return on bond funds averaged 10% in the past, the real return (after deducting administrative costs) averaged 4.5–6.5%. The performance of the Chilean pension funds is thus above average compared to the performance of private pension funds in the developed industrialized countries , compared to the average performance of private pension funds in other South American countries . The amount of the previous income is attributed by observers in part to special factors, such as B. the hitherto high real interest rate and the boom in financial markets and stocks, which is also related to the capital accumulation of pension funds.

In addition to or instead of pension entitlements from private pension funds, you may be entitled to state aid:

Citizens who have paid into the insurance system for 20 years and whose pension entitlement is still below a certain level are entitled to the minimum pension (Garantía de Pensión Mínima) . In this case the pension is topped up at state expense. The age at which this statutory minimum pension is paid at the earliest has been increased from 60 to 65 for men and for women from 55 to 60 as part of the reform.

There is also the Pensiones Asistenciales (PASIS) for citizens who are not entitled to a pension or who have paid in for less than 20 years. However, there is a fixed (and usually narrow) budget for PASIS services. When the annual budget is used up, no more pensions will be paid.

The number of workers actually paying into the pension scheme was 64% in 1980 (before the reform) and dropped to 58% in 2006. According to the professor at the Diego Portales University Patricio Navia, the low number is due to the view of many citizens that the administrative costs are too high and the expected pension is unfairly low. Many citizens therefore try to evade the pension system. Andras Uthoff, Director of the Social Development Division of the UN Economic Commission for Latin America ( ECLAC ) believes that the reformed Chilean pension system does not fit in with the reformed Chilean labor market, which allows only a small percentage of citizens to build up a significant pension.

According to the future projection by Berstein, Larrain Rios and Pino from 2005 (based on data from the period 1981-2003), the type of future pensions was predicted as follows:

Sebastián Piñera in a television debate with Michelle Bachelet during the 2005/2006 presidential election campaign
60% of workers are covered by the pension system For this expected type of pension:
Social assistance (PASIS) Top-up minimum pension (Garantía de Pensión Mínima) adequate private pension
40-50% 10% 40-50%

Sebastián Piñera , the brother of José Piñera and later President of Chile, declared during the presidential candidacy 2005/2006:

“Chile’s welfare system needs a profound reform in all areas, because half of Chileans are not entitled to a pension, and 40% of the others find it difficult to even meet the requirements for the minimum pension. This needs to be addressed now and we agree with Michelle Bachelet and I hope we will work together to address this. "

- Sebastián Piñera : In a televised debate with Michelle Bachelet during the January 2006 presidential campaign

Macro data

The Chileans pay contributions of around 3.5% of the gross domestic product into the private pension fund every year. The pension payments from the pension funds are still relatively low, as few payers have reached retirement age. The private pension funds had accumulated capital amounting to 52.77% of the gross domestic product by the year 2008.

year 2002 2003 2004 2005 2006 2007 2008
Annual contributions in% of gross domestic product: 3.57 3.40 3.48 3.57 3.32 3.44 3.49
Pension payments by the pension funds as a percentage of gross domestic product 1.95 1.99 1.99 1.78 1.64 0.90 1.92
Capital of the pension funds in% of the gross domestic product 55.07 58.16 59.08 59.35 61.01 64.43 52.77

International significance of the Chilean pension reform

Radiation effect in other South American countries

The Chilean pension reform was closely observed internationally and served as a model for some countries. Bolivia , Mexico , El Salvador and the Dominican Republic have carried out pension reforms that closely followed the Chilean model; in particular, there was also a complete changeover to the funded procedure there. Colombia and Peru only introduced private pension funds as a voluntary alternative to the pay-as-you-go system. Argentina , Uruguay and Costa Rica introduced a mixed system of pay-as-you-go and private pension funds. In Argentina and Peru, however, there was a partial departure from the reforms in 2007. There laws were passed that allow contributors to return to the publicly administered pay-as-you-go system.

Aspect of the macroeconomic savings rate

Since 1985, Chile’s economic savings have risen sharply. More investment has been made and Chile has become less dependent on foreign credit. Some economists interpreted the increase in the overall savings rate as a direct effect of the introduction of the funded system and recommended the Chilean pension reform as a model.

In other countries, a funded system was then also introduced with the aim of increasing the overall economic savings rate and thereby stimulating higher economic growth. However, a slight increase in the macroeconomic savings rate in coincidence with the pension reform could only be observed in Peru. In Argentina there was no change in the savings rate as a result of the pension reform. In Colombia and Mexico, the macroeconomic savings rate even fell after the introduction of the funded system.

The connection between the overall economic savings rate in Chile and the conversion of the Chilean pension system to the funded system is now again a controversial discussion in the economic debate. It should be noted that z. For example, in 1988 payments into pension funds amounted to 2.7% of the gross national product, which increased private savings accordingly. At the same time, the conversion costs amounted to about 4% of the gross domestic product, which has reduced public savings accordingly. All in all, contrary to initial assumptions, the change in the pension system did not have a positive but rather negative effect on the Chilean savings rate.

Peter R. Orszag and Joseph E. Stiglitz come to the conclusion that the introduction of a funded system does not in itself have any macroeconomic effects. The introduction of a funded system does not, for example, lead to an increase in the economy-wide savings rate if, without this pension reform, citizens would have saved a similar amount in another way (i.e. if the pension savings merely replace other forms of capital investment). The same is the case when citizens or the state take on debt as part of the pension changeover to the same extent as a capital stock is built up in the savings phase. So it doesn't matter how a pension system is organized, the funded system can be introduced for both public and private pension schemes. Furthermore, the fact of the introduction of a funded system does not in itself lead to an increase in the overall economic savings rate; this depends on the further behavior of citizens and the state. Against this background, it should be noted that reforms were carried out in other economic areas in Chile in the 1980s, which led to a maturation of the Chilean capital market and to strengthening of confidence in institutions of the Chilean capital market as well as to an increase in the willingness to save and invest to have.

2008 pension reform

Andrés Velasco on being appointed Chilean Minister of Finance by President Michelle Bachelet in March 2006

The pension system was reformed again in 2008 under the Bachelet government . Andrés Velasco, the leading economic advisor to the Bachelet government, named the two main problems to be addressed as security for the population and administrative costs. Too many people are outside the pension system and it is quite expensive to build capital with the pension funds. The reform follows a recommendation by the World Bank , which saw a strong redistributive component in the 1980s pension system at the expense of low or irregularly paid workers. A large part of the Chilean population is therefore cut off from pension provision because the Chilean labor market does not allow many workers to regularly pay high pension contributions. Many workers would therefore have difficulties getting to the 20 contribution years in order to at least reach the (state-topped) minimum pension. Since the pension funds charge high fixed administrative costs per policyholder and only a small part of the administrative costs depend on the amount of the managed capital account, the Chilean private pension funds for workers with lower incomes are very unprofitable and inadequate capital investments for old-age security, even in the case of full contribution payments. The World Bank therefore recommended abolishing the minimum pension and the Pensiones Asistenciales (PASIS) and instead introducing basic security based on solidarity, which is only topped up by the private pension funds.

The reform essentially comprises the following points:

  • The minimum pension Pensión Mínima Garantizada (PMG) and the Pensiones Asistenciales (PASIS) have been replaced by a tax-financed solidarity pension system (SPS) . All citizens who are older than 65 years, have lived in Chile for at least 20 years and whose private pension entitlements are below a certain level are entitled to this.
  • The disadvantage of women has been somewhat softened.
  • The legally defined framework within which pension funds are allowed to invest has been expanded.
  • The self-employed will also be included in the pension insurance system within a transition period up to 2015.

See also

literature

  • Tapen Sinha: Pension Reform in Latin America and its Lessons for International Policymakers . Kluwer Academic Publishers, 2000, ISBN 0-7923-7882-2 . (English).
  • Guillermo Larrain Rois: Enhancing the Success of the Chilean Pension System in: A Quarter Century of Pension Reform in Latin America and the Caribbean . Inter American Development Bank, 2005, ISBN 1-59782-020-2 . (English).
  • Monica Townson: Pensions Under Attack . Canadian Center for Policy Alternatives, 2001, ISBN 1-55028-694-3 . (English).

Web links

Individual evidence

  1. ↑ a b c d Joaquin Vial Ruiz-Tagle, Francisca Castro: The Chilean Pension System, OECD Aging Working Papers. 1998, p. 6.
  2. ^ A b c Friedrich Ebert Foundation, Yesko Quiroga: From role model to reform case: Chile is reforming its private pension insurance system.  ( Page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. P. 2.@1@ 2Template: Dead Link / www.fes.cl  
  3. ^ A b Willem Adema, Anders Reuterswärd, Veerle Slootmaekers: OECD Reviews of Labor Market and Social Policies: Chile. OECD, 2009, p. 144.
  4. ^ Kristian Niemitz: Funded old-age provision using the example of Chile. DiplomicaVerlag, Hamburg 2008, ISBN 978-3-8366-5903-1 , p. 32.
  5. ^ Joaquin Vial Ruiz-Tagle, Francisca Castro: The Chilean Pension System, OECD Aging Working Papers. 1998, p. 7.
  6. ^ Joaquin Vial Ruiz-Tagle, Francisca Castro: The Chilean Pension System, OECD Aging Working Papers. 1998, p. 10.
  7. ^ Joaquin Vial Ruiz-Tagle, Francisca Castro: The Chilean Pension System, OECD Aging Working Papers. 1998, p. 11.
  8. ^ A b Joaquin Vial Ruiz-Tagle, Francisca Castro: The Chilean Pension System, OECD Aging Working Papers. 1998, p. 8.
  9. ^ Joaquin Vial Ruiz-Tagle, Francisca Castro: The Chilean Pension System, OECD Aging Working Papers. 1998, p. 18.
  10. ↑ Johannes Jäger: The privatization of the pension system in Latin America: causes and consequences of the experiment in Chile. Wirtschaftsuniversität Wien, 1998, p. 9.
  11. ^ Willem Adema, Anders Reuterswärd, Veerle Slootmaekers: OECD Reviews of Labor Market and Social Policies: Chile. OECD, 2009, p. 145.
  12. ↑ OECD: Latin American Economic Outlook 2008. ISBN 978-92-64-03826-4 , 2007, p. 70.
  13. ↑ a b c Larry Rohter: Chile rethinks its privatized pension system. In: New York Times . January 10, 2006.
  14. ^ Guillermo Larrain Rois: Enhancing the Success of the Chilean Pension System. In: A Quarter Century of Pension Reform in Latin America and the Caribbean. Inter American Development Bank, Washington 2005, ISBN 1-59782-020-2 , p. 235.
  15. ↑ OECD: Contributions as% of GDP
  16. ↑ OECD: Benefits paid as% of GDP.
  17. ↑ OECD: Assets as a Share of GDP.
  18. ↑ OECD: Latin American Economic Outlook 2008. , ISBN 978-92-64-03826-4 , 2007, p. 71.
  19. ↑ a b c d OECD: Latin American Economic Outlook 2008. ISBN 978-92-64-03826-4 , 2007, p. 74.
  20. ↑ OECD: Latin American Economic Outlook 2008. ISBN 978-92-64-03826-4 , 2007, p. 75.
  21. ↑ M. Marcel, A. Arenas: Social Security Reform in Chile. Occasional Paper No. 5, IDB, Washington DC, 1992, p. 38
  22. ^ C. Mesa-Lago: Changing social security in Latin America: toward alleviating the social costs of economic reform. Boulder, London 1994, p. 132.
  23. ↑ quoted from Johannes Jäger: The privatization of the pension system in Latin America: causes and consequences of the experiment in Chile. Wirtschaftsuniversität Wien, 1998, p. 10.
  24. ↑ Peter R. Orszag, Joseph E. Stiglitz, Rethinking Pension Reform: Ten Myths About Social Security Systems, [1] presented at the World Bank's "New Ideas About Old Age Security" conference , Washington, DC, September 14-15, 1999
  25. ^ A World Bank Country Study: Household Risk Management and Social Protection in Chile. The World Bank , Washington DC 2005, ISBN 0-8213-5953-3 , p. 65.
  26. ^ OECD: Latin American Economic Outlook. 2008, ISBN 978-92-64-03826-4 , 2007, pp. 71, 72.