Considerations on the pension system, and the relationship of the population with him in Chile

Sometimes it makes sense to make comments on topical issues, and as the topic of today are the pension, and as (to) say they are various inaccuracies and (b) there are some interesting things from the point of view of the studies of opinion, here are some comments.

On the bankruptcy of the system of distribution.

A common argument of those who defend the AFP is that the systems of distribution are broken (or, if they are more accurate, which will crack in the future): The aging of the population translates into a decrease of the ratio contributors / pensioners inexorably produces the above.

Now, the case is that when a system of distribution enters into an imbalance actuarial (i.and we will have to pay more than we receive, which usually can be expected to) have ways of react: Increase rates of contribution, increasing the retirement age, changing the formula of benefits. And, given that bankruptcy is actuarial is not necessarily real (it can result in a greater cost to the treasury is not in that you do not pay the pension).

These measures (with the exception of the last, which is specific to the distribution) are not the same things that they propose to those who defended the system of AFP? The threat that demographic change has dynamics different, but all pension systems need to adapt. In one cast the threat is the bankruptcy actuarial product of the increasing percentage of retirees. In one compounding the threat is the decline in automatic pension produces the increase of the expectancy of survival (not living at birth, but how many years you expect to live someone who has already reached the age of retirement). And the tools are basically the same.

Which, by the way, has a consequence to the critics: while it is true that the systems of distribution are not broken automatically, this is true because they use the same tools that the critics do not want to accept for the system of AFP. There are various reasons to prefer one or the other, but there is no difference in around, finally, to improve performance they use the same type of resources.

On the evaluation of the distribution system (old system) in Chile.

The system of sharing old was strongly criticized in Chile in the pre-dictatorship. It was a system highly discredited for multiple reasons: The diversity of systems (boxes) with very different regimes of pension payments, a situation of bankruptcy and non-payment of pensions, lack of resetting them etc

An unexpected consequence (and I am sure that was not desired) of the 1981 reform was that all who remained in the old system were switched to be paid by the State via INP, now IPS. And that change results in a system that is expensive for the State (in part because it stops receiving contributions to fund it) but from the point of view of the processing is very advantageous: there is No threat of non-payment, the State will pay yes or yes pension; there is no problem of lack of adjustment etc, even More, a theme of the old system -and that indeed is something that is common in all systems of allocation – that is those who contribute but do not receive benefits (or receive very minor) because it does not comply with the rules of the system (does not accumulate years of insurance for example). Now, those people have probably not remained in the old system, and then the ones who stayed were those who were eligible for pension completed under the old system.

What concludes all of the above? The image of the old system the post-1981 is clearly superior to what could have been the maintenance of the old system now. In the form of ease of comparison, the that use any pensioner-compare pensions from two coworkers, one IPS and other AFP – then the old system of distribution is much better. And so, unexpectedly, the reform produced a good image of the old system.

The criticism of the AFP uses, and is based, in no small part, on the use of the logic of the system.

The logic of the individually-funded system implies that one is the owner of a pension saving: That is my money with which to pay my pension. It is interesting that this argument is used many times to justify the criticism of the system.

The idea that the AFP benefit from my money, which in fact stolen (because they get benefits that I don’t see it); that calls for a greater ownership of that savings (because I would yield more savings than the pension that I get from it) are things that one can observe in the critical current and which appeared in studies in which I participated. The criticism is, then, individualizante and on behalf of the right of property.

In a certain sense, the system of AFP makes use of a pledge of property that does not comply with: I can’t decide on that savings, I can not have him (I don’t decide on their uses, I can not sell it etc). If you want to, people seem to take very seriously the idea of compounding, which is a capital, and the system does not give to do this. Consider that if you choose a life annuity it is not possible to spend the capital to the heirs; if you choose to rent, scheduled in principle this is possible, but in reality this mode involves ‘eating’ the capital (and only produces inheritance in the event that someone dies before you). In this way does not generate the effects that are supposed to produce a capital (does not produce income inheritable, I can not ‘invest’).

Which is curious because the strongest arguments in favor of the AFP are in terms of investment instrument (the rate of return that occur) rather than in terms of pensions. And to think of it as an instrument of investment is thinking about it from a perspective of capital that the system eventually does not deliver.

Another of the basics, at least official, is the idea of choosing. And again the criticism is made from an idea of choice more intense: That I’m obliged to quote in the AFP (and that I have no other way available), that I’m obliged to finance (through the commission) to groups and companies that you probably do not want to finance. My impression is that the attractive existing, regardless of whether it is high or low, of the state AFP is not the topic of to increase the pension but to have an alternative to what is perceived as an obligation to fund large economic groups.

In summary, it’s a ‘gain’ ideological system -the ideas individualizantes of property and freedom – are part of what impels the criticism of him. The social life is, to repeat what does not cease to be truth to be common place, unpredictable.

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