argue that the current design is actually regressive, due to the prevalence of fixed
commission charges that disproportionably reduce the savings of low-income workers.
Women in particular are disadvantaged by the new system design, as they are less likely to
save early in their professional careers (due to time out of the formal work force for child
bearing and rearing). This limits the beneficial effects of compounded interest over several
decades for retirement benefits. IMF calculations suggest this may lower women’s final
accumulated savings by some 50% in comparison to their male counterparts.
The macroeconomic outcomes of policy choices are also shifting in the long-term –
reflecting the effect of the private pension regime on governmental obligations and fiscal
balances. Reformers expected public pension costs to nearly disappear in the long-term, as
fully funded private individual accounts replaced publicly provided defined benefits. Yet new
public obligations are now arising, in the forms of minimum pension guarantees and
assistance pensions. Projections vary, but these costs of could reach 5-6% of GDP on an
annual basis when the system matures.
Unlike partially privatized systems (where workers
still make contributions to the publicly managed system), these mounting expenses in Chile
are unfunded, and will draw on general tax revenues.
Long-term Political effects:
The political ramifications of reform are also shifting in the long-term, as public pension
33
Most private pension funds charge both a percentage of worker salaries and a fixed fee for the
management of the individual accounts. These fixed fees can comprise a sizable percentage of
low-income workers’ contributions. See Consejo (2006), p. 62.
34
Also see Bernstein, Larraín and Pino (2004).
35
See IMF (2005) and OECD (2005). Other estimates show declines in these expenditures, but
are based on the assumption that no coverage will be provided for those that fall through the
cracks into poverty – which is politically unrealistic. See Consejo (2006).
19
Convention