The Structural Pension Reform in Chile: Effects, Comparisons with Other Latin American Reforms, and Lessons

Abstract

Chile pioneered a structural reform in Latin America that privatized its public pension system and influenced similar reforms in another nine countries. Twenty-five years later, this article evaluates the macroeconomic, microeconomic, and social effects of this reform in Chile and the other countries in the region, and extracts lessons from those experiences. Fiscal costs of the reform have been high and prolonged, exceeded capital accumulation, and had a negative impact on national savings, but Chile's reform has contributed to the development of capital markets; employer's contributions were eliminated or reduced in half of the countries and the worker's share in the total contribution averages 65 per cent; competition is afflicted by a small number of administrators and a high level of concentration; administrative costs are high and stagnant; capital returns are fair but declining; portfolio diversification has been achieved only in Chile and Peru; labour-force coverage has declined in all ten countries, and gender and income inequalities have expanded.