Turns out Chile's pension system is a mess (GWB model for Soc Sec scheme)

[swag]

Remember the Chilean pension system praised by George W. Bush and others as a model for his Social Security privatization scheme? Well, it turns out it's a huge wasteful mess, as acknowledged even by Chile's most prominent "free market" proponents. Chileans can't wait to get rid of it. From yesterday's New York Times:

http://www.nytimes.com/2006/01/10/international/americas/10chile.html?pagewanted=1


. . . "There are two big issues, coverage and costs," Andrés Velasco, Ms. Bachelet's economic adviser, said in an interview here. "Too many people are outside the system," he said, adding that too many of those in the system have found that "saving via the pension funds is quite expensive."

According to a recent study here, Chile's pension funds, whose number has shrunk to 6 from more than 20 as competition has diminished, recorded an average annual profitability of more than 50 percent during a recent five-year period. Other studies, including one conducted by the World Bank, indicate that pension funds retain between a quarter and a third of workers' contributions in the form of commissions, insurance and other administrative fees.

. . .

"Chile's social security system requires deep reforms in all sectors, because half of Chileans have no pension coverage, and of those who do, 40 percent are going to find it hard to reach the minimum level," Mr. Piñera said in a televised debate with Ms. Bachelet on Wednesday. "This has to be confronted now, and we agree with Michelle Bachelet and will, I hope, join forces behind this large undertaking."
. . .
"It's a big reform, not just patching a few things up," Mr. Velasco said. While the rest of the world is still enamored of the original Chilean model, he noted, "we are moving to a Chile II model, and there is no blueprint for us to follow. We have to create from scratch."

[RaleighNCDUer]

1. And those who predicted a disaster with the Chilean model

four years ago are vindicated -- yet * still pushes it, from time to time.