February 28, 2005

MEANWHILE, IT'S 14% OF AMERICANS OVER 65 (via AWW):

Poor Chileans labor past retirement (Indira A.R. Lakshmanan, February 28, 2005, Boston Globe)

At a time when President Bush has made overhauling Social Security a central objective of his second administration, he and other proponents of privatization have held out Chile, the first in the world to privatize pensions in 1981, as a role model.

By transforming its system, this country of 16 million people fended off a looming pension debt owed its aging population and fueled domestic capital markets, contributing to high growth rates and a halving of poverty in what has become one of the most affluent nations in Latin America. For steadily employed Chileans who consistently channel 10 percent of their salaries into private retirement accounts, as required by law -- and preferably top it up with more, tax-free contributions -- pensions could reach 70 percent of salaries, providing a comfortable standard of living in retirement, according to estimates by the pension fund managers' association.

But what supporters of Chile's model have not advertised is that for poor, seasonal, and itinerant workers, and even for a great part of the middle-class and self-employed, the private system has proved inadequate, largely because those workers are unable to contribute enough to their private accounts. More than 17 percent of Chileans 65 and older keep working because their pensions are inadequate, according to a government-commissioned study.

Based on Chile's experience -- and that of more than 20 countries mostly in Latin America and Eastern Europe that followed its lead by privatizing part or all of their pension systems -- one conclusion from a new World Bank report is that the government will have to play a bigger role in any reformed pension system than proponents of privatization suggest. Private accounts can be one pillar of a Social Security system, but the state will have to provide a safety net.


The story opens with the heartrending sagas of Chileans who can't retire when they're 60...the heart bleeds.

However, the latter points are valid. If folks can't make full contributions we should fill the gap--a little now saves us big later. Andthere'll be a safety net for the truly destitute elderly.

Posted by Orrin Judd at February 28, 2005 12:34 PM
Comments

How long has Chile had it, 20 years?

Those 65 y.o. would have been in their 40s.

What about those who are now 40?

Posted by: Sandy P at February 28, 2005 1:18 PM

It's a little hard to keep track of when we're morally obligated to support our frail elderly in style, and when we're not supposed to be agist and remove barriers to a continued productive life well into their dotage.

Posted by: David Cohen at February 28, 2005 1:55 PM

Exactly what is the Bush Social Security plan? Beyond speaking in generalities about savings accounts, he has to unveil it as far as I can see. Considering his dishonest accounting with the Prescription Drug Plan, that hardly bodes well.

Posted by: Derek Copold at February 28, 2005 4:43 PM

"...the private system has proved inadequate" Inadequate compared to what? Chile's system has produced double digit returns over 20 years. On that basis any contribution made was handsomely rewarded. The writer must be refering to the system's inability to produce returns on limited no investment. We have a name for this, and is not retirement programs: it is called welfare.

Posted by: Moe from NC at February 28, 2005 4:47 PM

Derek:

The drug reform got HSAs. The SS reform will get accounts. The details don't matter.

Posted by: oj at February 28, 2005 5:46 PM

Query: If you own a private retirement account, are the assets in it protected against legal financial judgments, mulcts or governments seeking payment of tax bills?

Posted by: Harry Eagar at March 2, 2005 3:23 PM
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