Elliott Gotkine, BBC South
after General Augusto Pinochet toppled
Pablo Langlois is not a happy man. Retired after more than three decades
as a civil servant in
who retired at the same time as me earn around half their salary," he
laments. "I only get around a third."
67-year old architect says he lost out because in 1980, following
colleagues opted to remain in the old scheme.
while the AFP scheme may have left Mr Langlois worse off, for Chileans and
the country as a whole, it's been a life-saver, saving the country an
estimated 4% of GDP every year for each of its 23 years in operation.
who works, no matter how much or little they earn, pays 10% of their
salary into an AFP.
government contributes nothing (with the exception of those who, through
illness or accident, couldn't contribute enough to guarantee them a
through 'the change'
most important aspect of
was to create a system that would help develop
obliging Chileans to invest in AFPs, which were then forced to invest in
Chilean state securities, billons of dollars began pouring into the
country's underdeveloped capital markets.
restriction was later relaxed, first to allow investment in other types of
Chilean security and then in foreign ones. Of the $40bn invested by
Chilean AFPs, Mr Larrain says one-fifth is now invested abroad.
but pension funds in countries like Britain have struggled over the past
few years, as the stock markets they invested in turned bearish.
surely Chilean AFPs must have suffered too? Not according to Mr Larrain.
contributions are mandatory, he explains, the funds are more tightly
regulated and prevented from putting too many nest-eggs in too few
may not maximise their returns in the way they could in a freer
environment," he says. "But the risk that they take is also
second reason for
the old system, people like our unhappy pensioner, Juan Pablo Langlois,
simply had their pension contributions taken out of their pay packets,
along with health insurance and other taxes.
the new system, it's seen more as a mandatory saving and so curries less
resentment and is therefore less likely to be evaded.
particularly applies to workers who may have operated in the informal
sector, and therefore didn't pay taxes.
non-tax payers, they would have been locked out of the new system. So it's
had the effect of "inducing" more formalisation of the labour
market, says Mr Larrain.
third reason is political. After General Pinochet came to power, he set
about an aggressive privatisation campaign, as he sought to undo the
nationalisations of the man - Salvador Allende - he overthrew.
was a sort of political design to spread private property as far and as
fast as possible," says Mr Larrain.
wanted to strengthen the idea of capitalism, of private property in all
to a study carried out by Chile's central bank, one-third of the extra GDP
growth Chile experienced from1981-2001 (average growth 4.6%) compared with
1960-1980 (average growth 3.1%), was down to its pension reform.
equates to around half a point extra in annual GDP.
the AFP system has stumbled is with the beneficiaries.
because there is a maximum contribution limit of a around $100 a month
(though people can take out separate private pensions); and second,
because Chileans are given little or no choice when it comes to selecting
"brokers" that sell them are usually nothing more than glorified
salesmen, pushing whatever product rakes in the largest commission.
still, many people who buy annuities are unaware that the salesman's
commission comes out of their pension savings, something which may sound
all too familiar to victims of
good news is that a bill before Congress promises to solve these problems.
The bad news, is that it's been there, gathering dust, for the best part
of a decade.
But Mr Larrain is confident
it'll be passed some time this year, and certainly long before the last
beneficiary of the old pension system is no longer with us, in around