Introduction

The focus of this chapter is on the economic and social performance of the privatized pension system in Chile implemented since the early 1980s. To evaluate the pension system we can use several criteria, such as:

• a. The value of pensions relative to wages (replacement ratios) or relative to per capita income and the poverty rate.

• b. Degree to which the system is balanced in its financing (i.e., tripartite contributions).

• c. Differences in pension levels between sub-systems (horizontal equity of benefits).

• d. Costs of managing the private pillar. Profit rates of the private pensionmanagement fund companies.

• e. Level and composition of public spending to support the overall pension system.

• f. Who uses the savings of the pension funds pool, in particular the financing of economic conglomerates, commercial banks, private corporations, export of Chilean wage earners’ pension savings to other economies.

• g. Workers’ participation in the operation and investment policies of the pension funds.

• h. Fiscal impacts of the transition from PAYG to capitalization.

In Chile as of the late 2010s, the average pensions paid by the dominant private capitalization pillar (AFP and insurance companies) is the lowest of any pillar (except the pilar solidario). It is below the average pensions paid by the pillar of the old cajas (IPS) and only represents 20–25 percent of the average pensions paid by the national defense pension system (CAPREDENA and DIPRECA). Other features of the current pension system are: (a) the existence of significant gender-based differences in pension levels, (b) only employees have to make regular contributions to the dominant private capitalization pillar, excepting employers of their contribution, (c) employees have no seats in the board of directors of the pension of the pension-management companies, depriving them of voice and voting power in corporate decisions affecting the pension funds. These practices depart from the social security standards promoted by the International Labor Office and ratified by member countries around the world.

As of 2018 the share of pension funds invested within Chile represents 58 percent of the total pension funds, and 42 percent of the funds are invested outside the country. In a nation like Chile with shortage of national savings to support domestic economic development and reduce poverty, inequality and advance environmental goals this practice of exporting abroad a large proportion of pension savings is highly controversial.