Do you understand pensions and annuities? I don’t. So when I heard Herman Cain talking about the US embracing Chile’s retirement system as opposed to continuing to rely on Social Security I wondered what was going on in Chile?
I haven’t had time to do much digging, but I did come across this written in 2005. At that time there were some concerns about selling Chile’s system to the world. Bush was pushing for us to lose Social Security and switch to a program where workers put aside their own money for their own retirements.
That sounds great except for the fact that in Chile there are a lot of women who haven’t, or couldn’t pay into the system and therefore they won’t receive benefits. There are some benefits if the woman is married- family benefits but they won’t offer the same amount that she might have gotten if she had been paying into her own account.
I was also interested to see that women were supposed to work until 60 and men were to work until 65 under Chile’s pension system ( as of 2004). So whether we like it or not we have to recognize that these programs are created within a social structure. In this country while I don’t want to make a blanket statement like “only women choose to stay out of the professional work force in order to care for families”, I do think that we should recognize that there are large numbers of women who may not pay into a retirement system long enough to be able to draw benefits from the system.
Plus, in order to move from one system to another a lot of guess work has to be done. There is no easy way to figure out how much someone who has been paying for a lifetime into social security should be “given” when new workers are using the personal investment program for creating an annuity for their own retirement. Read this:
A World Bank report released in December 2004 entitled, Keeping the Promise of Social Security in Latin America, found that the reforms have reduced fiscal liabilities, helped develop the nations’ financial sectors, and improved the equity of pension systems. “Most importantly,” the report states, “the shift to individual accounts was a major structural improvement to the income-smoothing objective of pension systems for most current contributors…. But there have also been significant disappointments,” the report continued, “chief among them the failure to extend access to social security to a broader segment of society.”
To get a better sense of how the system is working, Mitchell and two researchers on the University of Pennsylvania Economics faculty, Jere Behrman and Petra Todd, are collaborating with the University of Chile’s Centro de Microdatos to review survey data from pension plan participants and government records.
Mitchell says one concern about the system is the so-called density of contributions, which refers to the pattern of lifetime contributions into the system. If people don’t pay in long enough, they may not accumulate enough money to generate an adequate pension benefit. In Chile, workers in the wage and salary “formal” sector are required to pay into the system. Self-employed workers in Chile, unlike those in the United States, are not required to pay into the system, although they may do so voluntarily.
Preliminary research indicates that the average Chilean worker has paid into the system about half the time, says Mitchell. “This suggests that he or she will likely have enough contributions by retirement to be eligible for some benefit.” Also, initial work with new survey data shows that three-quarters of those not making contributions are women, and two-thirds of those women are not the heads of their household, says Mitchell. “The chances are that many are in households where the spouse is likely to be covered. If so, this would make policymakers worry less, since there’s some degree of family protection.”