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January 27, 2005

Failure of Chile's Pension Privatization

This will be blogged across the zone, but:

[N]ow that the first generation of workers to depend on the new system is beginning to retire, Chileans are finding that it is falling far short of what was originally advertised...

Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month.

"Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me," he said, "are retiring with pensions of almost $700 a month - good until they die."

There is no crisis in social security, but in Chile they created a crisis in their pension system due to privatization.

Most telling is one cause of the economic crisis for retirees:

Among the complaints most often heard here is that contributors are forced to pay exorbitant commissions to the pension funds. Exactly how much goes to such fees is a subject of debate, but a recent World Bank study calculated that a quarter to a third of all contributions paid by a person retiring in 2000 would have gone to pay such charges.
The brokers got rich and the workers are left in proverty. About what you'd expect from a system the Bush administration admires.

Posted by Nathan at January 27, 2005 01:04 AM