Thursday, January 27, 2005

Social Security Privitization in Chile

The New York Times looked at privitization of Social Security in Chile. As with the private program in Great Britain, the experience in Chile was not promising. Bush has cited the program in Chile as a model for his plans, but one major difference is that Chile built up several years of budget surpluses before instituting the changes, as opposed to Bush's plans to impose this plan after squandring the budget surplus present when he took office. Other findings in the article include:
Even many middle-class workers who contributed regularly are finding that their private accounts - burdened with hidden fees that may have soaked up as much as a third of their original investment - are failing to deliver as much in benefits as they would have received if they had stayed in the old system.

"What we have is a system that is good for Chile but bad for most Chileans," said a government official who specializes in pension issues and who spoke on condition of anonymity, fearing retaliation from corporate interests. "If people really had freedom of choice, 90 percent of them would opt to go back to the old system."

Among the complaints most often heard here is that contributors are forced to pay exorbitant commissions to the pension funds. Exactly how much goes to such fees is a subject of debate, but a recent World Bank study calculated that a quarter to a third of all contributions paid by a person retiring in 2000 would have gone to pay such charges.


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