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The rationale and performance of personal pension plans in Chile

Author

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  • Vittas, Dimitri
  • Iglesias, Augusto

Abstract

Many developing countries, especially in Latin America and Eastern Europe, have unfunded pay-as-you-go public pension systems that face growing financial pressures. These emanate from a weak link between contributions and benefits, from widespread evasion, and from an aging population. Chile successfully reformed its public pension system in 1981 when it introduced a government mandated and regulated, but privately managed system. Based on individual capitalization accounts operated by specialized financial institutions, known as, Administradoras de Fondos de Pensiones (AFPs), the system has provided a considerable scope for competition and efficiency within a well-regulated environment. The authors analyze the rationale of the Chilean pension system and examine in detail the rules and provisions regarding coverage, contribution rates, pension benefits, and investment regulations. They also provide a detailed assessment of the structure and performance of the system, its impact on financial sector development, and the role of regulation and supervision. The Chilean experience shows that there is a positive dynamic interaction between pension funds and securities markets so long as a strong regulatory and supervisory mechanism is in place. It has also shown that it is feasible to finance the costs of transition from an unfunded to a funded system.

Suggested Citation

  • Vittas, Dimitri & Iglesias, Augusto, 1992. "The rationale and performance of personal pension plans in Chile," Policy Research Working Paper Series 867, The World Bank.
    • Handle: RePEc:wbk:wbrwps:867
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    References listed on IDEAS

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    1. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    2. Vittas, Dimitri & Skully, Michael, 1991. "Overview of contractual savings institutions," Policy Research Working Paper Series 605, The World Bank.
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    Cited by:

    1. Rodrigo Cifuentes, 1995. "Reforma de los Sistemas Previsionales: Aspectos Macroeconómicos," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 32(96), pages 217-250.
    2. Vittas, Dimitri, 1997. "The Argentine pension reform and its relevance for Eastern Europe," Policy Research Working Paper Series 1819, The World Bank.
    3. Peter A. Diamond, 1996. "Proposals to Restructure Social Security," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 67-88, Summer.
    4. Ajit Singh, 1998. "Pension Reform, the Stock Market, Capital Formation and Economic Growth: A Critical Commentary on the World Bank’s Proposals," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 2(8-7), pages 51-78.
    5. Sebastian Edwards, 1998. "The Chilean Pension Reform: A Pioneering Program," NBER Chapters, in: Privatizing Social Security, pages 33-62, National Bureau of Economic Research, Inc.
    6. Samuel, Cherian, 1996. "Stock market and investment : the governance role of the market," Policy Research Working Paper Series 1578, The World Bank.
    7. -, 2005. "Social security reforms and their implications for the Caribbean," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 27571, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Vittas, Dimitri, 1993. "Swiss Chilanpore : the way forward for pension reform?," Policy Research Working Paper Series 1093, The World Bank.
    9. Polackova, Hana, 1997. "Population aging and financing of government liabilities in New Zealand," Policy Research Working Paper Series 1703, The World Bank.
    10. Vittas, Dimitri, 1993. "The simple(r) algebra of pension plans," Policy Research Working Paper Series 1145, The World Bank.
    11. von Gersdorff, Hermann, 1997. "Pension reform in Bolivia : innovative solutions to common problems," Policy Research Working Paper Series 1832, The World Bank.
    12. Vittas, Dimitri & Michelitsch, Roland, 1995. "Pension funds in Central Europe and Russia : their prospects and potential role in corporate governance," Policy Research Working Paper Series 1459, The World Bank.
    13. Vittas, Dimitri, 1995. "Tunisia's insurance sector," Policy Research Working Paper Series 1451, The World Bank.
    14. Vittas, Dimitri, 1993. "Options for pension reform in Tunisia," Policy Research Working Paper Series 1154, The World Bank.
    15. Caprio Jr., Gerard & Vittas, Dimitri, 1995. "Financial history : lessons of the past for reformers of the present," Policy Research Working Paper Series 1535, The World Bank.
    16. Shah, Hemant, 1997. "Toward better regulation of private pension funds," Policy Research Working Paper Series 1791, The World Bank.
    17. Armando Barrientos, 1993. "Pension Reform and Economic Development in Chile," Development Policy Review, Overseas Development Institute, vol. 11(1), pages 91-108, March.
    18. Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank.

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