Importance

Chilean Case

Proposals

Pension System Coverage:

Evaluation and Evidence for Chile

Guillermo LarraínSuperintendent of Pension Funds

President of AIOS

October, 2003

Importance

Chilean Case

Proposals

Analyzing Coverage

Coverage can be analyzed from two different perspectives:

Proposals

Importance Number of affiliates: these are the workers that have contributed, at least once, at some point during their lives.

Number of contributions that an affiliate makes during his/her life.

Workers Covered

Amount of Benefits

Importance

Chilean Case

Proposals

Coverage is importantWorkers Covered: People excluded would not be entitled to benefits during their old age. They would need their own savings or family support during retirement. In case of poverty they would need assistance from the government.Amount of Benefits: The benefit’s amount depends significantly on the number of

contributions:

Effect of periods without contributions over the pension benefit

0%

-25%

-39%

-58%-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

full density 10 years at the end 10 years at themiddle

10 years at thebeginning

Importance

Importance

Chilean Case

Proposals

Coverage in ChileChilean Case

Importance

Chilean Case

Proposals

Chile: top in L.A. ranking (10 years of 50-60% Coverage)

Contributors/ActiveLabor Force 2002 (source: AIOS)

0%

10%

20%

30%

40%

50%

60%

Argentina Bolivia Chile ElSalvador

México Perú UruguayChilean Case

Monthly Contributors (1984-2003)

20%

40%

60%

80%

100%

contributors / labor force

contributors / affiliates

Importance

Chilean Case

Proposals

Contributors/affiliates has decrease and Females continue 10% under Males

Differences by Gender

56%

47%44%37%

0%

10%

20%

30%

40%

50%

60%

1992 2002Year

Male

Female

Independents workers: extremely

low coverage

Dependent v/s independents coverage (2002)

4,7%

70%

0%20%40%60%80%

Independents Dependents

Chilean Case

Importance

Chilean Case

Proposals

Younger independent

workers, even less coverage

Distribution of Independent Contributors & Labor Force

0%

5%

10%

15%

20%

-20 20-25

25-30

30-35

35-40

40-45

45-50

50-55

55-60

60-65

65-70

70+

IndependentContributors

IndependentLabor Force

Chilean Case

Distribution of Dependent Contributors and Labor Force

0%

5%

10%

15%

20%

-20 20-25

25-30

30-35

35-40

40-45

45-50

50-55

55-60

60-65

65-70

70+

Dependent contributors

Dependent labor force

Importance

Chilean Case

Proposals

Younger people have lower voluntary savings

Voluntary savings distribution by age and type

0%

5%

10%

15%

20%

25%

AFP Mutual Funds Insurance Comp.

-20 20/25 25/30 30/35 35/40 40/45

45/50 50/55 55/60 60/65 65/70 70

Chilean Case

Importance

Chilean Case

Proposals

Coverage CASEN (2000) by Education

37%43%

53% 55%

70%75%

83%

20%

40%

60%

80%

2000

no educationincomplete primarycomplete primaryincomplete secundarycomlpete secundaryincomplete superiorcomplete superior

More Education, more coverage

(Casen survey 2000)

Coverage CASEN (2000) by zone

65%

43%

20%

40%

60%

80% urban

ruralMore urban, more coverage (Casen

survey 2000)

Chilean Case

Importance

Chilean Case

Proposals

There is a very low

knowledge about the system

(SAFP Survey 2002)

¿Do you now the amount you contribute monthly to your pension funds (AFPs)?

53% 47%

0%20%40%60%

Yes No

¿Do you now the price (comission) you pay to your funds administrators (AFPs)?

3%

97%

0%50%

100%

Yes No

¿Do you now the amount of your personal fund?

44%56%

0%

20%

40%

60%

Yes No

Chilean Case

Importance

Chilean Case

Proposals

Some ideas to deal with Coverage

Proposals

Importance

Chilean Case

Proposals

Independents Workers

Tax incentives. Simplify contribution’s payment. Short run benefits to create incentives:

Health program Unemployment insurance

Correlate payments with income profile Establish a mandatory contribution for independent workers

Low Income Workers Create incentives for low income workers to go formal

Establish a lower rate of mandatory contributions for this group

Keep familiar benefits even when the wife is a dependent worker

Establish gradual minimum pension benefits

Proposals

Importance

Chilean Case

Proposals

WomenWomen in general face several difficulties, among which we have: early legal retirement, lower salaries, live longer, frequent periods of no contributions because of maternity.

Some ideas include:Include work-at-home women into the system through additional husband's contribution or other mechanism (maybe with incentives) Increase legal retirement age (from 60 to 65)Subsidy from men to womenFlexibility of labor market considering women’s needsProposals

Importance

Chilean Case

Proposals

Other Proposals

Better education about the benefits of the system.

Greater involvement with the system Example: voluntary retirement saving,

multiple funds.Proposals

Importance

Chilean Case

Proposals

Pension System Coverage:

Evaluation and Evidence for Chile

Guillermo LarraínSuperintendent of Pension Funds

October, 2003