Chile pension system

The Pension System -Spanish "Sistema Previsional"- refers to old-age, disability and survivor pensions for workers in Chile [http://www.reformaprevisional.cl/reforma_previsional/archivos/descargas/Manual%20Informativo.pdf Reforma Previsional, Manual Informativo] : Second Edition, April 2008, Ministry of Labor and Social Welfare ] . Instituted by the Pinochet Government on November 4, 1980 [http://www.josepinera.com/pag/pag_tex_empowering.htm Empowering Workers in Chile] : Piñera, José, 1996, Cato Institute] it is the first comprehensive retirement and welfare system managed entirely by the private sector [http://www.safp.cl/573/articles-3523_copyright.pdf The Chilean Pension System] : Yazigi, Alejandro, "et all" 2003] .

In a nutshell, a portion of the worker's salary is deducted each month and placed in a special account. This money is managed by a specialized pension company which invests it and charges a commission. When the worker chooses to retire, he can set up a monthly payment schedule from his account. See below for a more comprehensive description of the system.

History

On November 4, 1980, Chile, under the leadership of José Piñera, Secretary of Labor and Pensions under Augusto Pinochet, implemented with the collaboration of his team of Chicago Boys (a group of libertarian economists influenced by the Chicago school of economics of American economist Milton Friedman) the first comprehensive change of a state-run, defined-benefit pension scheme to a defined-contribution system managed entirely by the private sector (by pension management companies called "AFP"), under the supervision of a dedicated government agency, the Superintendency of AFP.

The Chilean system of personal retirement accounts started operating on May 1, 1981. Civilian workers covered under the previous defined-benefit plan had the choice of opting-in to the new system or of remaining under the previous system, such election being irrevocable. Workers hired after Jan. 1, 1983 must join the new system. Today 97% of civilian salaried workers are officially in the private system. According to the Superintendency of AFP, the system had accumulated USD $100 billion at October 30, 2007, an amount equivalent to 70% of the GNP of Chile.

The Chilean system provides that all civilian salaried workers must contribute 10% of their salary to a privately run pension fund, that sum being remitted on their behalf by their employer. The worker can choose one of six private pension administrators and change at will. Self-employed individuals may contribute voluntarily, and salaried workers can also enhance their pension through additional voluntary contributions. The Chilean armed forces and police remained covered by separate defined-benefit plans.

ee also

* Chile under Pinochet
* Economy of Chile
* Welfare reform

References

External links

* [http://www.safp.cl/573/propertyvalue-1821.html Pension Superintendency]
*cite web
url=http://www.iht.com/articles/2006/01/10/news/chile.php
title=Chile rethinks its privatized pension system
author=Larry Rohter
publisher=International Herald Tribune
date=2006-01-10

"Supporting pension reform:"
* [http://www.pensionreform.org International Center for Pension Reform] , founded and headed by José Piñera himself"Critical of pension reform:"
*cite web
url=http://www.worldbank.org/knowledge/chiefecon/conferen/papers/rethinking.pdf
title=Rethinking Pension Reform: Ten Myths About Social Security Systems
author=Peter R. Orszag and Joseph E. Stiglitz
publisher=World Bank
date=1999-11-15
* Nicholas Barr: " [http://www.imf.org/external/pubs/ft/fandd/2001/09/barr.htm The Truth About Pension Reform] ", in: Finance & Development, September 2001, vol. 38, no. 3.