The Chilean system of contributory pensions as locus of rivalry and of a new social compact by Ana Sojo published by ECLAC and GIZ (11/2014)
This study assesses the contributory pension system in Chile and offers some recommendations for reform, from the viewpoint of social rights that generate expectations of satisfaction. The primary objective of any pension system is to provide income security to the elderly, and contributory pensions must reflect the savings achieved throughout working life in order to guarantee that, for similar levels of effort, similar and proportionate protection will be obtained. Taking arguments from economic welfare theory and using empirical and quantitative evidence, we show that the low and decreasing long-term replacement rates of contributory pensions are related to the profit orientation of the contributory pension system and the accompanying rationale employed by private administrators and the related financial and business network. The reforms proposed are justified on the grounds that under certain circumstances the State AFP (public pension fund administrator), because it is not governed by profit, can fulfil a crucial function in terms of a generalized increase in pension replacement rates, and can have direct and indirect systemic effects that will be of substantial benefit to the middle class, which is greatly disadvantaged under the current system. The study insists on the need to move toward a new, compulsory contributory system of individual accounts not geared to profits, and it offers some general guidelines to this effect. In addition, it illustrates the need for care policies that can enhance the sustainability of financing for social protection.
