Assessing Chile's Pension System: Challenges and Reform Options
IMF Working Papers, September 10, 2021
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- Assessing Chile's Pension System: Challenges and Reform Options
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Bibliographic details
- Authors: Samuel Pienknagura, Christopher Evans
- Published: September 10, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513596112.001
Overview
- Chile’s defined contribution pension system was influential when introduced but is now delivering low replacement rates relative to OECD peers.
- Key drivers of underperformance: parameters that did not adapt over time to changing demographics and global returns, and persistent informality in the labor market.
- Recent legislation allowing pension savings withdrawals to counter the effects from the COVID-19 pandemic is projected to further reduce replacement rates and increase fiscal costs.
- A substantial improvement in replacement rates is feasible via a reform that raises contribution rates and the retirement age, coupled with policies that increase workers’ contribution density.
Key findings
- The system is delivering low replacement rates relative to OECD peers.
- Demographic trends and low global interest rates will continue to reduce replacement rates in the absence of reforms.
- Informality in the labor market undermines contribution density and pension adequacy.
- Pension savings withdrawals enacted in response to COVID-19 are projected to:
- further reduce replacement rates, and
- increase fiscal costs.
Projections and fiscal implications
- Without reform, the system’s inability to deliver adequate outcomes for a large share of participants will continue to magnify due to demographic trends and low global interest rates.
- Recent pension withdrawals are explicitly projected to reduce replacement rates and increase fiscal costs (no numeric fiscal aggregates provided on the page).
Reform options and policy recommendations
- Combine measures to raise contribution rates with an increase in the retirement age.
- Implement policies aimed at increasing workers’ contribution density (reducing informality and improving continuous contributions).
- Such a combined reform package is characterized as capable of producing a substantial improvement in replacement rates.
Subjects and keywords (as listed on the page)
- Subjects: Aging, Expenditure, Gender, Labor, Pension spending, Pensions, Population and demographics, Retirement, Women
- Keywords: Aging, contribution rate, fiscal cost, Global, Pension spending, Pensions, reform option, replacement rate, Retirement, savings withdrawal, Women
Samuel Pienknagura and Christopher Evans, "Assessing Chile's Pension System: Challenges and Reform Options", September 10, 2021, IMF Working Papers No. 2021/232.
Content in this bundle
- Working Paper