Last month, a scandal erupted in Chile. The media discovered that the former director of the Chilean gendarmerie, the country’s penitentiary service, was receiving a pension of about $8,000 per month. Chile privatized its pension system in 1980. Instead of sending retirement money to the government, workers there put their money in private accounts that invest and accumulate savings to be used in old age. When Chile approved the reform, the military and some law enforcement agencies (such as the gendarmerie) remained in the old public system.
Although the abuse occurred within the old public pension system, which benefits a minority of Chileans, and the beneficiary in this case was a socialist political activist and ex-wife of the head of the lower house of Congress (also a socialist), the episode was used to attack the private system to which almost every Chilean worker belongs. The left declared that the private accounts managed by the private pension fund companies (known by their Spanish acronym AFP) provide low pensions, something that incensed many Chileans who saw that the AFPs do not pay the same level of pension evident in this particular case.
Before long, protests involving hundreds of thousands of people took place throughout the country under the slogan “No + AFP,” and demanded a return to the old pension system. Last week, President Michelle Bachelet announced a series of reforms that would give the state a larger role in peoples’ retirement.
The extent to which the campaign against the private pension system relies on deception, falsehoods, and distortions is impressive. The Chilean case matters because it is the model that has inspired reforms in dozens of countries around the world, from Sweden to Hong Kong, and from Peru to Poland. To avoid falling victim to demagoguery, it is important to contrast facts with ill-founded criticisms, something that neither the Chilean AFPs nor many others in the region do well.
http://www.cato.org/blog/attack-chiles- ... ion-system
The Attack on Chile’s Private Pension System
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The Attack on Chile’s Private Pension System
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