Silver anniversary for Chile retirement pension system

November 8, 2006

Free Market Foundation

As Chile celebrates the silver anniversary of its retirement pension system, little attention has been paid to the microeconomic aspects of the 25-year-old programme, say the authors of a National Bureau of Economic Research (NBER) Working Paper.

But to change that, the authors have introduced a recently developed survey of about 20,000 individual respondents that provides valuable new information for microeconomic analyses of key aspects of the Chilean system. Their results show:

Over their working lives, men self-report contributing to the pension system about half the time since age 18, with lower levels for women.

Self-reports of payments into the new Chilean pension system indicate higher contribution levels than do administrative records for the same people over the same time period.

Spells of non-contribution appear mainly to be periods when people held no jobs, were unemployed or self employed.

Account balances reported by respondents who claim to know their accumulations are remarkably similar to those derived from administrative records.

Still, most workers cannot accurately report contribution requirements, how much they pay in commissions, what rules are for minimum pensions and how they have their funds invested

Much of the lack of knowledge about the system is concentrated on those with poorer backgrounds, less education and women.

However, it is essential to recognise that the system is still very young, and in transition, say the authors. Most people retiring now were actually not covered by the new system over their entire working lives. What is still to be determined is how well future retirees will do who spend their entire lives under the new system.

Source: Alberto Arenas de Mesa, David Bravo, Jere R. Behrman, Olivia S. Mitchell, Petra E. Todd, The Chilean Pension Reform Turns 25: Lessons From The Social Protection Survey, National Bureau of Economic Research, Working Paper No. 12401, August 2006.

For text: http://www.nber.org/papers/w12401

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 31 October 2006