FIAP > Boletín – Recientes > Pensions Note No. 26: “Proposals for reducing the gap between pension expectations and the pension amounts received in the Individually Funded System in Chile” – June 2018
15 June, 2018
Pensions Note No. 26: “Proposals for reducing the gap between pension expectations and the pension amounts received in the Individually Funded System in Chile” – June 2018
The average pension amount in Chile is approximately US$ 283, whereas a pension considered to be reasonable for people aged 65 or more is US$ 624. Thus, there is a monthly pension gap of US$ 341. Among the causes explaining this gap are low wages, the shortcomings of public pension policies, communication deficiencies, and the issues involved in people formulating their pension expectations.
It was found that some of the shortcomings of public pension policies are, for example, that the individually funded system promises a “pension” to all, even though they contribute for a short period of time, creating optimistic expectations among workers.
An example of communications deficiencies is the partial information provided by the media for decades, reporting on the good results in the financial management of the pension funds, without ever emphatically stating that these returns will not suffice for providing adequate pensions to those with low contribution frequencies, thus creating unrealistic pension expectations.
Pension expectation issues are related to two realities. First of all, few people under 60 understand that senior citizens have sources of income other than their pensions, making it unnecessary for the pension alone to satisfy all household requirements. Secondly, few people realize that accessing pensions similar to expected amounts depends on having contributed a sufficient amount for a sufficient amount of time.
In order to help people formulate their pension expectations, it is recommended that the three categories of benefits stipulated by the International Labor Organization (ILO) should be adopted: (i) “Programmed reimbursement of insufficient contributions” for those who have contributed for less than 10 years; (ii) A “Partial Pension” for those who have contributed for more than 10, but less than 30 years; and (iii) A “Full Pension” for those who have contributed for more than 30 years. The rest of the proposals include the creation of an insurance policy for addressing the contingency of severe dependency in extreme old age; a non-contributory subsidy of USD 77 per month for individuals who live in households with senior citizens in this condition; and compensating Programmed Withdrawal pensioners whose pensions have dropped by more than 30%.
