Chile Pension Reform Comes Under World Spotlight

The man who masterminded Chile’s world-famous privatised pension system still calls it the “Mercedes-Benz” of retirement systems, but that has proved an enraging comparison when the average pensioner is eking out an income that turned out to be less than the minimum wage, the Financial Times reported. José Piñera created the scheme as social security minister 35 years ago when Chile, under the military dictatorship of Augusto Pinochet, was the world’s free-market laboratory. His recent defence, attacked as arrogant and elitist, only fuelled the anger of protesters who have taken to the streets to demand the system’s reform — or even its abolition. For many years, institutions like the World Bank held up Chile’s defined-contributions pension system as an example to follow, and it has been copied by more than 30 countries across Latin America, Southeast Asia and Eastern Europe, but its legitimacy is in question, and President Michelle Bachelet is promising reforms to try to shore up the system. Pensions saving was privatised in 1981, when Chile was one of Latin America’s poorest countries and shunned by foreign investors, and the new scheme replaced a failing state-funded pay-as-you-go system. By requiring employees to set aside 10 per cent of their income, it provided a huge boost for savings, investment, employment and growth. Read more. (Subscription required.)