nothing - but then who expected US Media to be a truth teller about anything where the truth might anger the GOP? Indeed the "he said/she said" format does not work when one side is a bunch of liars - a fact the GOP/rich do an excellent job of exploiting.
Multinational corporations have gained a stronghold over the Chilean economy through their control of financial companies that control workers' pension funds. These competing, private pension fund companies were set up in 1980 as a mandatory replacement for the government social security system. After the crash of 1981-1983, several of the most important pension fund companies were taken over by the government. When they were resold in the following years, foreign financial consortia purchased controlling shares in many.
http://www.tcf.org/Publications/RetirementSecurity/chileprivatization.pdfWhat Went Wrong
1. Volatility. For more than a decade, the returns on AFP accounts seemed spectacular. The selling off of state enterprises and, from 1985 to 1991, high interest rates contributed to an average annual real return over fifteen years of 16.6%, peaking at 35% from 1989 to 1991. Almost half of the investments were in government bonds that were indexed to inflation, which was high during that period. But subsequently Chile’s economy cooled, and so have returns on personal pension accounts. In 1994, more than half of the AFPs incurred losses. In 1995, average returns fell to -2.5%, and over the past three years they have averaged only 1.8%. Since 1995, the average dollar amount of pensions paid has also dropped.
2. High Expenses and Fees. Total AFP expenses range from 15% to 20% of annual contributions--an average of $62 per enrollee in 1995. (U.S. Social Security expenses, by way of contrast, amount to less than 2% of contributions.) Approximately one third of these expenses represent sales costs, which from 1988 to 1995 more than doubled as a percentage of total expenses as AFPs competed for enrollees, not by reducing charges but by mounting ever more extravagant marketing campaigns. Swayed by free toaster ovens and other prizes or the promise of bigger returns, 25% of enrollees switch AFPs each year. These expenses consume a higher percentage of low earners’ contributions than high earners’ contributions, and they reduce the rate of return for every Chilean. In 1995, fees and commissions amounted to 23.6 percent of contributions, or 2.4 percent of average wages. According to World Bank economist Hemant Shah, commissions reduced individuals' average rates of return between 1982 and 1995 from 12.7% to 7.4%, and between 1991 and 1995 from 12.9% to a mere 2.1%. One actuary has calculated that for a new enrollee the 3.5% gross yield in 1996 actually amounted to a return of -6.8%. That same year the profit margins for AFPs--five of which controlled 80% of the market, constituting an implicit cartel--averaged more than 22%.
3. Evasion and underreporting. According to Chilean economist Jaime Ruiz-Tagle, workers contributing to AFPs earned an average of $1,000 in February 1995 but declared an average taxable income of only $460. Only 58% of workers contributed anything at all. Evasion through underreporting is particularly widespread among low earners, who figure that the guaranteed minimum pension will exceed what their retirement funds can yield. Employers, too, often underreport payroll in order to evade other taxes and charges. In February 1996, there were 150,000 unresolved suits against employers for insufficient or nonexistent deposits of worker contributions.
4. Inadequate coverage. A United Nations Development Program report estimates that 40% of AFP contributors will require additional assistance. The less one earns and the longer one lives, the more likely it is that an AFP account will not suffice. Since women in Chile, as in the United States, earn less on the average, leave the workforce more frequently to bear and raise children, and outlive men, they are particularly at risk. U.S. women, in contrast, benefit from the redistributive nature of Social Security, which provides more generous benefits, as a proportion of income, to low earners. The only safety net for the poor is a minimal pension that provides barely enough to pay for a loaf of bread and a cup of coffee each day. And even that austere program is limited to 300,000 Chileans, excluding thousands of the most destitute citizens. Moreover, most of the self-employed, who constitute more than 28% of the Chilean workforce, are especially vulnerable because participation in an AFP plan is not mandatory for self-employed workers; as of 1996, only 10% of them had voluntarily enrolled.
5. High transition and supplementary costs. Add up the pensions under the new system and those still being paid under the old one, the "recognition bonds," the minimum pension, and other guarantees, and the private pension system is at least three times as costly to run as the system it replaced. Government spending on pensions currently amounts to 6% of Chilean GDP.
A FOOTNOTE:
The junta protected one class of Chileans from privatization. The military continues to this day to receive pensions under the old governmental system.
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bad old aarp sells the idea in 1995 - but has backed off now - in 1995 the inflation guarantees and other guarantee options being a disaster waiting to happen with no cure except massive economic distaster was not appreciated
Chile's Experience with the Privatization of Social Security
In 1981, Chile replaced its public defined benefit social insurance system with a private mandatory defined contribution scheme, a radical reformation that a number of other countries - faced with problems similar to those that led to reform in Chile - have considered adopting. Some observers in the United States have even recommended privatizing the U.S. Old-Age, Survivors Insurance and Disability Insurance (OASDI) program. In this AARP Public Policy Institute Issue Brief, Sara E. Rix highlights the factors leading to the reform in Chile, describes the features of the new system, and discusses the advantages and disadvantages of the reform for Chile and future Chilean retirees. (8 pages)
Download or view Chile's Experience with the Privatization of Social Security in Portable Document Format.
http://research.aarp.org/econ/ib23_chile.pdfpublication ID: IB23 publication date: August 1995
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