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The Structural Pension Reform in Chile: Effects, Comparisons with Other Latin American Reforms, and Lessons

Author

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  • Alberto Arenas de Mesa
  • Carmelo Mesa-Lago

Abstract

Chile pioneered a structural reform in Latin America that privatized its public pension system and influenced similar reforms in another nine countries. Twenty-five years later, this article evaluates the macroeconomic, microeconomic, and social effects of this reform in Chile and the other countries in the region, and extracts lessons from those experiences. Fiscal costs of the reform have been high and prolonged, exceeded capital accumulation, and had a negative impact on national savings, but Chile's reform has contributed to the development of capital markets; employer's contributions were eliminated or reduced in half of the countries and the worker's share in the total contribution averages 65 per cent; competition is afflicted by a small number of administrators and a high level of concentration; administrative costs are high and stagnant; capital returns are fair but declining; portfolio diversification has been achieved only in Chile and Peru; labour-force coverage has declined in all ten countries, and gender and income inequalities have expanded. Copyright 2006, Oxford University Press.

Suggested Citation

  • Alberto Arenas de Mesa & Carmelo Mesa-Lago, 2006. "The Structural Pension Reform in Chile: Effects, Comparisons with Other Latin American Reforms, and Lessons," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(1), pages 149-167, Spring.
    • Handle: RePEc:oup:oxford:v:22:y:2006:i:1:p:149-167
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    Citations

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    Cited by:

    1. Barr, Nicholas, 2006. "Pensions: overview of the issues," LSE Research Online Documents on Economics 2631, London School of Economics and Political Science, LSE Library.
    2. Javier Olivera, 2014. "The effects of a multi-pillar pension reform: The case of Peru," Working Papers 21, Peruvian Economic Association.
    3. Landerretche, Oscar M. & Martínez, Claudia, 2013. "Voluntary savings, financial behavior, and pension finance literacy: evidence from Chile," Journal of Pension Economics and Finance, Cambridge University Press, vol. 12(3), pages 251-297, July.
    4. Javier Olivera & Blanca Zuluaga, 2014. "The Ex‐Ante Effects Of Non‐Contributory Pensions In Colombia And Peru," Journal of International Development, John Wiley & Sons, Ltd., vol. 26(7), pages 949-973, October.
    5. Carmelo Mesa‐Lago & Fabio Bertranou, 2016. "Pension reforms in Chile and social security principles, 1981–2015," International Social Security Review, John Wiley & Sons, vol. 69(1), pages 25-45, January.
    6. Chavez-Bedoya, Luis & Castaneda, Ranu, 2021. "A benchmarking approach to track and compare administrative charges on flow and balance in individual account pension systems," Insurance: Mathematics and Economics, Elsevier, vol. 97(C), pages 7-23.
    7. Raddatz, Claudio & Schmukler, Sergio L., 2008. "Pension Funds And Capital Market Development:How Much Bang For The Buck?," Policy Research Working Paper Series 4787, The World Bank.
    8. Asher, Mukul G. & Vasudevan, Deepa, 2008. "Lessons for Asian Countries from Pension Reforms in Chile," PIE/CIS Discussion Paper 381, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    9. Carmelo MESA-LAGO, 2008. "Social protection in Chile: Reforms to improve equity," International Labour Review, International Labour Organization, vol. 147(4), pages 377-402, December.
    10. Jara, Mauricio & López-Iturriaga, Félix & San Martín, Pablo & Saona, Paolo & Tenderini, Giannina, 2019. "Chilean pension fund managers and corporate governance: The impact on corporate debt," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 321-337.
    11. Sasse, Lea, 2021. "Chile despertó - The reasons for the mass protests in Chile 2019/2020," IPE Working Papers 166/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    12. Javier Olivera, 2013. "Old-age Support and Demographic Transition in Developing Countries. A Cultural Transmission Model," Working Papers 201307, Geary Institute, University College Dublin.
    13. Emma Aguila & Michael D. Hurd & Susann Rohwedder, 2008. "Pension Reform in Mexico: The Evolution of Pension Fund Management Fees and their Effect on Pension Balances," Working Papers wp196, University of Michigan, Michigan Retirement Research Center.
    14. Park, Donghyun & Estrada, Gemma, 2012. "Developing Asia’s Pension Systems and Old-Age Income Support," ADBI Working Papers 358, Asian Development Bank Institute.
    15. Miroslav Verbič & Rok Spruk, 2019. "Political economy of pension reforms: an empirical investigation," European Journal of Law and Economics, Springer, vol. 47(2), pages 171-232, April.
    16. Javier Olivera, 2015. "Efectos fiscales y distributivos de un sistema de pensiones multi-pilar en Perú," Working Papers 56, Peruvian Economic Association.
    17. Kristjanpoller, Werner D. & Olson, Josephine E., 2021. "The effect of market returns and volatility on investment choices in Chile’s defined contribution retirement plan," Journal of International Money and Finance, Elsevier, vol. 112(C).
    18. Petra Todd & Viviana Vélez-Grajales, 2008. "How Pension Rules Affect Work and Contribution Patterns: A Behavioral Model of the Chilean Privatized Pension System," Working Papers wp193, University of Michigan, Michigan Retirement Research Center.
    19. Olivera, Javier, 2010. "Recuperando la Solidaridad en el Sistema Peruano de Pensiones. Una Propuesta de Reforma [Recovering the Principle of Solidarity in the Peruvian Pension System. A reform proposal]," MPRA Paper 60194, University Library of Munich, Germany.

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