Chile pension system

From Wikipedia, the free encyclopedia

This article needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (February 2008)

Please help improve this article or section by expanding it.
Further information might be found on the talk page or at requests for expansion. (February 2008)

On November 4, 1980, Chile, under the leadership of José Piñera, Secretary of Labor and Pensions under Augusto Pinochet, implemented with the collaboration of his team of Chicago Boys (a group of libertarian economists influenced by the Chicago school of economics of American economist Milton Friedman) the first comprehensive change of a state-run, defined-benefit pension scheme to a defined-contribution system managed entirely by the private sector (by pension management companies called "AFP"), under the supervision of a dedicated government agency, the Superintendency of AFP.

The Chilean system of personal retirement accounts started operating on May 1, 1981. Civilian workers covered under the previous defined-benefit plan had the choice of opting-in to the new system or of remaining under the previous system, such election being irrevocable. Workers hired after Jan. 1, 1983 must join the new system. Today 97% of civilian salaried workers are officially in the private system. According to the Superintendency of AFP, the system had accumulated USD $100 billion at October 30, 2007, an amount equivalent to 70% of the GNP of Chile.

The Chilean system provides that all civilian salaried workers must contribute 10% of their salary to a privately run pension fund, that sum being remitted on their behalf by their employer. The worker can choose one of six private pension administrators and change at will. Self-employed individuals may contribute voluntarily, and salaried workers can also enhance their pension through additional voluntary contributions. The Chilean armed forces and police remained cover by separate defined-benefit plans.