Coverage in the Chilean Pension
System
Solange Berstein– Chair IOPS Technical Committee
Pensions Supervisor, Chile
IOPS Regional Workshop
Amman, Jordan
February 2011
Content
1) Main Features of the Chilean Pension System
2) Coverage in a Defined Contribution System
3) Latest and most important reform in Chile
4) Lessons from Chile
Chilean Multi-Pillar Pension System
» The Chilean Pension System is supported by three pillars:
 Pillar 1: Old age poverty prevention: State financed
 Pillar 2: Consumption smoothing: Mandatory (defined
contributions)
 Pillar 3: Consumption smoothing: Voluntary savings
Coverage in a Defined Contribution System
» Pensions provided by the system depend directly on
individuals contribution histories
 Making consistent contributions throughout the working life (high
density of contributions)
 The timing of those contributions (contributions when young
benefit from compound interest)
 Time of retirement (as benefits are based on actuarial calculations,
early retirement has a significant negative impact)
» Participation is closely linked to occupational status
 Mandatory participation for salaried workers – > 80% coverage
 Voluntary participation for self-employed – > 5% coverage
Density and Timing of Contributions
Pension
Early
contributions
PAYG
Constant
density
Late
Contributions
20
40
Years
contributed
Latest and Main Reforms to the Pension System
» 2008-2010 (non-comprehensive list)
 Creation of the basic pension (PBS) for non-contributors and a
supplementary state contribution (APS)
 Competitive auctions for new affiliates and for the disability and
survivorship insurance
 Introduction of gender-equality elements: grant per child for
women; economic compensation in case of divorce; survivorship
pensions for men
 Introduction of risk-based supervision for AFPs
 Increased flexibility of the investment regime of pension funds
Latest and Main Reforms to the Pension System
Coverage: The 2008 Pension Reform
Improve the level of coverage of the system by increasing
personal contributions while providing a strong safety net
for individuals who are not able to contribute
A More Integrated Pension System
VOLUNTARY
PILLAR
MANDATORY
CONTRIBUTIONS
SOLIDARITY
PILLAR
Increase Coverage: Solidarity Pillar
» Diagnosis:
 The poverty-prevention pillar offered limited coverage to
individuals excluded of the formal labor market or with very little
participation in it
 A large proportion of individuals presented low density of
contributions thus not qualifying for the MP-g (minimum of 240
non-consecutive contributions needed), in particular women
» Reform:
 Basic Solidarity Pension (PBS) for individuals who could not
contribute and belong to the least affluent 60% of the population
(target will be reached in 2011, currently 55%)
 Solidarity Complement (APS) for individuals who financed small
pensions, designed to limit savings disincentives
Increase Coverage: Solidarity Pillar
» Effects: Number of PBS beneficiaries and Average PBS
450,000
$ 90,000
$ 80,000
400,000
$ 70,000
350,000
$ 60,000
300,000
$ 50,000
250,000
$ 40,000
$ 30,000
200,000
$ 20,000
150,000
$ 10,000
100,000
$-
Sep-08
Dic-08
Mar-09
Jun-09
N° of Males
Sep-09
Dic-09
N° of Females
Mar-10
Jun-10
Sep-10
Average PBS (CLP)
Dic-10
Increase Coverage: Solidarity Pillar
» Effects: Number of APS beneficiaries and Average APS
250,000
$ 90,000
$ 80,000
200,000
$ 70,000
$ 60,000
150,000
$ 50,000
$ 40,000
100,000
$ 30,000
$ 20,000
50,000
$ 10,000
-
$-
Dic-08
Mar-09
Jun-09
Sep-09
N° of Males
Dic-09
N° of Females
Mar-10
Jun-10
Sep-10
Average APS (CLP)
Dic-10
Increase Coverage: Contributive Pillar
» Diagnosis:
 High levels of occupational coverage (i.e. proportion of workers
in work who pay contributions)
 However, many individuals presented low density of
contributions, meaning inadequate levels of savings for old age
 Lack of contributions for self-employed along with low savings
rates for this group
 Poor contributory behavior and low contributions densities for
young people (related to their high levels of unemployment)
» Reform:
 Additional tools for supervising contribution payment
 Default participation as of 2012 and mandatory participation
starting 2015, plus associated benefits for self-employed
 Subsidy on hiring and on pension contributions of young, lowincome workers
Increase Coverage: Contributive Pillar
» Effects: Recovered unpaid contributions
 As of August 2010 a total of 70,000 workers have been benefited
with the recovery of unpaid contributions for over USD 1 million
» Effects: Voluntary affiliates
 As of November 2010 a total of 6,090 individuals became
voluntary affiliates
 These are mainly women that has been affiliated in order to get
the bonus per child of the reform, but there are also cases of
affiliates with less than one year of age
Increase Coverage: Contributive Pillar
» Effects: Number of subsidies for young workers
25,000
20,000
15,000
10,000
5,000
0
Mar09
Abr09
May09
Jun- Jul-09 Ago09
09
Sep09
Females
Oct09
Nov09
Males
Dic09
Ene10
Total
Feb10
Mar10
Abr10
May10
Jun- Jul-10
10
Increase Coverage: Voluntary Pillar
» Diagnosis:
 Levels of voluntary savings seemed insufficient, especially among
workers with medium and low earnings, for whom the system of
tax exemptions did not represent a strong incentive
» Reform:
 Creation of collective voluntary pensions savings plans (APVC in
spanish)
 Matching contributions for low and middle income voluntary
savings
Increase Coverage: Voluntary Pillar
» Effects: Number of APV accounts eligible for subsidy
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Oct08
Dic08
Feb09
Abr09
Jun09
Ago09
Oct09
Dic09
Feb10
Abr10
Number of Deposits: Tax-Exempt upon Withdrawal
Number of Deposits: Tax-Exempt upon Contribution
Jun10
Ago10
Oct10
Lessons from Chile
 Coverage cannot be measured just by the number of
people contributing in a given moment
 For a defined contribution system early contributions
are very important, efforts should be made to
encourage people to contribute at an early stage
 There might be significant heterogeneity between
individuals, this should be considered by policy
makers giving the tools for different types of workers
to make up their pension
 Monitoring the performance of the pension system
with adequate data is very important, so that reforms
are based in relevant information
Coverage in the Chilean Pension
System
Solange Berstein– Chair IOPS Technical Committee
Pensions Supervisor, Chile
IOPS Regional Workshop
Amman, Jordan
February 2011