Friday, September 01, 2006

Retirement Fund Reforms : The Chilean Case (II)

In 1989 a step further was taken with the implementation of saving voluntarily account, which allowed to enhanced the saving options. Today there are 814.000 of this accounts with positive balance, accumulating U$$ 827 million. Another account is the Retirement saving account (There are 363.000 of these account)which accumulate U$$1200 million, with an average amount of U$$ 2100.This account has tax incentives .-
An interesting question is what would have happened whether the old system would not have been changed?. It is an interesting but difficult question, because it allows to understand the impact of such reform, but at the same time assuming that nothing else would have done with the former system .
In a recent seminar on the issue (, two qualifies economist analyses and discuss the topic, among theirs conclusions it is important to mention:
a.- Public deficit would have soared to 8% of GDP
b.- Pension retirement amount would have been between 40 up to 50% of average income. The actual system have an average return of 10%,making possible to have as retirement pension, up to 70% of average income.
c.- Only 35 % of potential retired workers would have collect retirement fund
d.- Capital accumulation would have been reduced by 9.7%
e.- GDP per capita would have been 7.6% lower than what it has been. Almost a third of GDP growth between 1980 and 2001, is explained by the effect of private pension reform.-
An additional step was taken in the year 2002,with the implementation of the Multi option investment funds, which divides the portfolio among 5 investment alternatives, ranging from the higher risk and higher expected return(15% since 2002) , to the lower risks and lower return ( 5.9% since 2000). Actually the total fund accumulates resources by U$$ 73.000 million, (roughly 70% of GDP) ,70% of which are invested on domestic asset, and 30% are invested on foreign assets.
Therefore, Chilean economy growth in the last 25 years, is very much related to the retirement pension reform. On the other hand, its contribution to the financial markets developments, and domestic saving availabilities has allowed to make the economy less dependent from foreign aid and external saving to support growth. As a result, the Chilean economy is less dependent form volatile external resources.-
Is it possible to improve the quality of the system.Sure It is.There are some topics to take care of concerning independent and women workers.-

No comments:

Post a Comment