washingtonpost.com  > Politics > Special Reports > Social Security
Page 2 of 2  < Back  

A Safety Net With Some Holes

About 50 percent of the labor force actively participates in the system, but that is far short of the 80 percent participation envisioned by proponents. Those who frequently switch jobs tend to contribute little, resulting in meager payouts.

"The system works well for those who have stable jobs," said Guillermo Larrain Rios, who has helped run the system since 2003. "For those who don't have stable jobs, you need to give them some kind of help."


Retirees wait in line at a government office in Santiago to receive their monthly pension payments.

_____Related Story_____
For Many, It's Back to the State (The Washington Post, Apr 11, 2005)
_____Graphics_____
Social Security Around the World As U.S. Considers Private Accounts, Experiences in Chile and Britain Provide Some Inspiration and Offer Cautionary Tales
_____Special Report_____
Social Security

Friday's Question:
It was not until the early 20th century that the Senate enacted rules allowing members to end filibusters and unlimited debate. How many votes were required to invoke cloture when the Senate first adopted the rule in 1917?
51
60
64
67


About 30 percent of Chileans are what economists call "informal" workers, without permanent employers recognized by the government, compared with about 7 percent of the U.S. labor force, Larrain said.

Chile provides a modest safety net. Workers who contribute for at least 20 years are guaranteed a pension of about $140 a month, no matter how little money their private plans contain.

But many observers consider that safety net -- and the $66 billion spent so far to maintain it -- to be a flaw in Chile's system. Given the pace of contributions, more than half of the workers who retire in the next 30 years will not have enough money in their plans to receive the minimum payout.

Those holes in coverage should not escape the notice of backers of privatization in the United States, economists said. But Chile's experiences may not translate to a country like the United States, with a mature economy, a vast, heterogeneous population and a level of wealth that could support a government-funded pension system.

It is "hugely spurious" to assume that successes and failures in Chile's system might be easily transferred to the United States, said Truman G. Packard, a World Bank economist who last year co-wrote a book about Latin America's pension systems. He said that many of the perceived benefits from Chile's system resulted from an economy that was underdeveloped in the early 1980s and capable of enormous transformation.

"Chile in 1981 was a very different place than the U.S. is today, and it's very difficult to draw conclusions about what would happen in the U.S. based on Chile," Packard said.

Many countries with aging populations fear their state-run social security systems could collapse when projected payments to retirees overwhelm contributions from people still working. They want to see if Chile's privatization experiment, imitated around the world, including in 11 other Latin American countries, might point them in a better direction.

Workers in Chile have enjoyed returns averaging more than 10 percent since the program began, and privatization proponents say that the investment has helped turn Chile's economy into one of Latin America's strongest.

But those high average returns are not evenly distributed among Chilean pensioners. Many retirees, like Opazo's husband, have not benefited from the switch to private accounts and receive paltry pensions that the government must supplement.

Economists attribute this shortfall to the way government transferred workers from the old system to the new one. During the transfer, the government used figures from the period from 1976 to 1980 to determine the worth of workers' investment in the previous, pay-as-you-go system. Those years coincided with a deep recession and widespread unemployment in Chile. As a result, workers were not adequately compensated for the time they spent in the old system.

"The legacy from the old system has proved very relevant in determining what peoples' pensions will be," said Axel Christensen, a private investment manager in Chile who also has worked for one of the fund management companies in the pension system.

Chile's government believes that as more workers are phased out of the old system, cases like Opazo's will become less common.

In light of such problems with the privatized system, Chile is considering a package of reforms that could include raising the retirement ages to 65 for men and 60 for women. As U.S. lawmakers debate adopting a private system, Chilean politicians are heatedly fighting over their own program's future.

"It is probably going to be one of the main issues in our presidential campaign this year," Interior Minister Jose Miguel Insulza said.


< Back  1 2

© 2005 The Washington Post Company