Struggling to Boost Chile’s Meager Pensions
Gabriel Boric Is Struggling to Boost Chile’s Meager Pensions, Jacobin, Phineas Ruekert.
Dale Coberly on Social Security: Not so long ago (2003) the Liars who want to destroy Social Security in America were bragging about the privatized pension system adopted by Chile. Many of those liars commented on my posts on AB. Here is an update. This is what Chile’s great privatized pension system looks like today.
Jacobin’s Phineas Rueckert: Zuñiga is one of many over-sixties struggling to survive under Chile’s privatized pension regime. A relic of the country’s seventeen years under the iron-fisted dictatorship of General Augusto Pinochet, who overthrew democratically elected president Salvador Allende in 1973, the system requires Chilean workers to pay 10 percent of their salaries to pension fund administrators (in Spanish, AFPs), who reinvest their savings into the private market. While the system has made a lot of money for foreign capital, it has left Chileans with pensions that are much lower than in neighboring countries.
Left-wing president Gabriel Boric, elected in 2021 on a wave of discontent with rising inequality that saw over three million protesters take to the streets, made reforming the pension system a legislative priority. The current system was created under military rule in 1981, when the pay-as-you-go public pension system was replaced by a privatized one. This was part of an onslaught of neoliberal measures that also included reforms to education and other social services. Hailed by right-wing figureheads from Margaret Thatcher to George W. Bush, who in 2003 looked to Chile as a model when trying to reform the US Social Security system, the system has put a lot of money in the pockets of foreign businesspeople, many of them in the United States, as well as the wealthiest Chileans. As the New York Times reported in 2016, three of Chile’s six largest private pension funds are run by foreign companies, managing $171 billion alone.
“Chilean and foreign capitalists are financing themselves on the humanity and the labor force of Chilean workers to expand their fortune outside the country,” Mesina said. “In a country as small as this, it allocates more than $90 billion abroad.”
In Chile, however, this capital-markets investment has not led to higher pensions. The replacement rate — the monthly pension actually received, as a proportion of the worker’s final month of salary — hovers around 20 percent. In 2016, center-left president Bachelet passed a bill to institute a Universal Guaranteed Pension (in Spanish, PGU), financed through various taxes, to subsidize the smallest pensions. Even with this crutch, pensions are often below the poverty line in one of Latin America’s most expensive countries.
“Essentially much of the world was hoodwinked by the system that was concocted under military dictatorship in far-off Chile,” former ambassador Heine told Jacobin. “And forty years later, when the results come in, we all realize it was a scam.”
Angry Bear’s Dale Cobely: Recently, France showed what happens to a pension paid for by the government: the Retirment age was increased by two years, abruptly and very much without consent of the governed . . . because, after all, if the government pays for it, the government owns it.
Roosevelt understood that, and he made American Social Security worker-paid “so no damn politician can take it away from them.” Roosevelt might not have reckoned with the persistence of damn politicians or the short memory of workers. Right now, we are, or at least I am . . . engaged in a war to save Social Security for the workers against the damn politicians on the right and the left, with not much help from the workers who are hoping that somehow, they can get their groceries in retirement paid for by someone else.
If you have to go down to your local library to read this op-ed, you should do so.
While there, you should also read this…
Productivity Is Up. Whether It Lasts Is Crucial to the Economy.
In 1994, the United States entered an era of productivity gains that enabled healthy growth. Could it happen again?
Are We in a Productivity Boom? For Clues, Look to 1994
Thirty years ago, the U.S. entered an era of productivity gains that enabled healthy growth. Experts are asking if it could happen again.
the project:
Reimagining the Economy | New Economic Models | AMACAD
Dobbs
I have resisted the anti-hijacking policy at AB because I think readers shold be able to quit reading what does not interest them, but your comments here don’t seem to have anything to do with the topic of my post: the failure of the famous Chilean privatized retirement plan.
Maybe they got posted here by mistake.
well,
enjoy your free lunch.
If I remember history, Chile used to be important because of its guano deposits.
And then it switched to copper ore.
Wikipedia: Chile was, in 2019, the world’s largest producer of copper, iodine and rhenium, the second largest producer of lithium and molybdenum, the sixth largest producer of silver, the seventh largest producer of salt, the eighth largest producer of potash, the thirteenth producer of sulfur and the thirteenth producer of iron ore in the world. …
Mining nitrate in the North of Chile defined the country’s history from the late 19th century to the mid 20th. Indeed, the period 1873-1914 is referred to as the Saltpetre Republic. …
Fun fact, from out on the web: ‘saltpeter can be extracted from bat and bird guano that collects along the cave floor through a process known as leaching.’
If Chile had put their Money in Nvidia all would be fine. HaHa
The government run SS systems take on Debt to augment pensions which generally creates more INFLATION —raising prices—the cake gets eaten either way
The US (which I believe you are referring to) SS system retrieves the funds collected and invested in secure government bonds which do not payout commissions to corporate entities for risky investments. Ha, Ha . . . The returns of which match payouts over the planned years requiring little or no increase in taxes. What we are faced with today or in 10 years is a slight increase in SS tax withholding of 1% for individuals and another 1% for commercial endeavors. This will take it out to about 2070. Terrible isn’t it?
Bill
total needed increase is 2% for the worker plus 2% from the employer. can be reached gradually by one tenth of one peercent increase per year if we start by 2025,
this will take us out “forever” as far a rhe eye can see.
a 1.55% immediate increase, each would take us to 2099, with a need for about another 1% increase at that time..
i have no idea what Jackson is talking about. Neither does he.
coberly:
He is saying we can do better by investing in the market. Which we could if investing and high returns was the purpose. It is not the purpose and our returns are adequate and far safer.
Bill
if he had read the post he would have seen what “investment in the market” could lead to. given the corruption we have seen, i would say “would” lead to.
but safety is what Social Security is all about. it is essential. 2008 was an example of the government saving us from corruption in the market. you never hear anyone talking about it that way. even the left, which talks about the corruption, thinks the Fed bailout was “socialism for the rich.” to the extent that it was…reading Bernacke’s book, I think the Fed was acting professionally and correctly given the society we have and not the society we wish we had.
i would say that while i have come to think that capitalism inevitably leads to corruption, and if not corruption, to exploitation, as well as poverty and environmental destruction that capitalism cannot fix. that doesn’t mean i think pure socialism would work any better…the corruption would just move into the government..”like you’ve never seen before,” as citizen Trump might say.
Social Security is the best example i can think of where “the government” and enable the people (workers) to protect themselves from the inevitable dislocations of an essentially capitalist economy. be nice to learn from the model to apply it to other problems. but is looking like we cannot even save social security. as Pogo says, “People fergits.”
@Jackson,
“The government run SS systems take on Debt to augment pensions “
How does SS take on debt? I thought that by law SS can’t go into deficit. Indeed, right now SS has a *surplus*, which by law is invested in special US treasuries. If nothing is done, when the Trust Fund runs out, SS benefits will be reduced–SS will not borrow to replace it.
joel
just to be clear, SS is run by the government, but not paid for by the government.
i know you know this. but the Liars in Congress lie about it. and most people believe the lie.
when the SS Trust Fund runs out, Congress may borrow more money from the public to make up the difference. …making it welfare and contributing to the debt. Then the rich will know how to destroy it at their leisure.
On the list of foreign guv’mints that hold US bonds…
MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(Way down on the list)
in billions ofdollars, left most figure is ‘as of Jan 2023’ and the rest is 2022 month by month
Chile 34.2 34.0 34.1 33.8 34.0 36.0 38.1 40.5 39.4 36.5 37.4 37.2 35.3
Peru 31.8 32.1 31.0 31.1 32.2 32.4 32.0 30.8 29.9 30.3 29.9 29.5 29.0
dobbs
this has nothing to do with Social Security, or anything else I can think of, why are you here?
That’s a kind of existential question, isn’t it?
Are you an existentialist?
Dobbs
i hope it’s kt an existential question.
the owners of the blog made a big deal out of “off topic” and “hijacking.” i defended you at the time, because they also accuse me of it when they don’t like what i say…offering what i think is the way out of their circular reasoning.
but today you have exhausted my patience…mostly, perhaps, because nobody else here seems to be interested in what i had to say which was about a surtax to solve the “deficit emergency” neither of which has anything to do with Social Security…except as one of my friends points out…to take away the Lie that SS causes the debt…by solving the huge horrible debt problem by addressing the real cause.
So why did you bring up Chile, anyway?
Okay, maybe you didn’t bring it up.
You’d rather remind us about having folks pay a little bit more each week to keep our social security solvent. I get that. Most here do I think. I hope it turns out the way you want it to.
I just don’t see what Chile’s problem has to do with our problem.
Dobbs
I “brought up Chile” because the Chilean privatization was advertised as a great success in order to sell privatization of Social Security. Now,twenty years later it appears to have been a great failure. I thought it was important to point that out.
You might not have needed to ask if you had read the first paragraph of my post.
Back when Mrs Fred & I were starting our careers, our high-tech employer decided that they would promote the Individual Retirement Act, eseentially to supplant social security. We took this to heart, started contributing – it was tax deductible after all. Then along came 401k’s which were only slightly different. But these are essentially ‘private pension plans’. We kept at it, and accumulated quite a lot of retirement funds, which we did not begin to withdraw until age 70 or so. This went according to our plans.
I would argue that that was an opportunity that could not be, should not have been ignored. However, reality/hardship sets in, and unlike soc sec such funds could be used far too soon. And such was the case for many people, all over. If you are living ‘pay-check to pay-check’, this is perhaps especially true.
Perhaps the Chileans have bought US Treasury notes to protect their pension system.
As of Jan 2023 (billions of dollars), the top 3:
Japan 1104.4
China, Mainland 859.4
United Kingdom 668.3
Looks like Chile (& Peru) are really missing out.
Dobbs
you are insoluble.
@Fred,
Social Security has been described as one leg of a 3-legged stool: SS, defined benefit/contribution plans, and personal savings. Obviously, that worked out for you and your wife. For millions of Americans, it isn’t possible to save enough, defined benefit plans are disappearing and defined contribution plans don’t always invest wisely or sufficiently. For most Americans, their Social Security is most of their retirement income, the only thing keeping them from living under a bridge and eating cat food (or worse). With stronger unions and more progressive tax policies, things could be different, but until that blessed day, Social Security will be a one-legged stool for millions of elderly Americans.
joel
thank you.
it might also be worth noting for those of you who believe in the market and private investment: Social Security does not stop you from investing however you please. Yes, SS “takes” (and saves with interest) about ten percent of your income. But your real income is more than twice (much more) than the income your parents and grandparents had to live on and, far enough back, to provide for their own retirement as well as their parents’.
Meanwhile, almost no matter how clever you are, you can make more money if half the elderly population is not destitute than you can if they are.
wanting to kill SS outright (forced privatization) or by “making the rich pay” is simple greed and stupidity.
[sorry, i did not discuss “making the rich pay” in this issue. but if you care to think about it you may see why i include it with greed and stupidity along with the privatizers.]
note: this reply is not directed at joel [after the thank you] but mostly to “whomever it may concern.”
note2: it concerns you even if you are not concerned. Especially if you are not concerned/