Options for Radical Reforms to Pension Systems: Chilean and Swedish Models Compared

Pension systems are under stress in the whole world. Demographic tendencies, informal labour markets, and distributive designs –inter alia-, coupled with the rigidity of the legislation, and implied financial imbalances, social debate and –sometimes-, reforms. These could be classified into two main categories: parametric and radical reforms. Two models have features to be classified as radical pension reforms in the last decades: Chilean (or AFP) and Swedish (or NDC) models. The central aim of this essay is to compare both radical reforms, at the level of “ideal types”. Doing that, some questions are answered, namely: In what feature do they have differences? Which are the incentives they set to human behaviour in order to meet the goals of the design? Are the models truly different? Which problems do they address and which to they set aside? Moreover, which problems remain unsolved, and what troubles do they add? Here, the intention is to concentrate in the technical aspects of the design intended to solve financial problems of the systems, trying to show the relevant trade offs.