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FIAP > Boletín – Otras Publicaciones > Political economy of the pension systems. Analysis based on the Chilean experience – José Pablo Arellano Marín – June 2019
16 October, 2019

Political economy of the pension systems. Analysis based on the Chilean experience – José Pablo Arellano Marín – June 2019

  • José Pablo Arellano, doctor in economics, former Budget Director and Minister of Education in the governments of the Concertación in Chile, recently published his latest study called “Political economy of the pension systems: analysis based on the Chilean experience.” The study was published under the auspices of the Corporation for Latin American Studies (CIEPLAN) and the University of Talca.
  • Based on Chilean reality in the last five decades, the book examines different aspects of the pension systems, as well as their operation in the light of State and market failures, from which conclusions are drawn that need to be considered when reforming the pension systems.
  • One of the book’s conclusions is that the Defined Benefits (DB) system, often touted as a solidarity system, has actually been transformed into a false solidarity system, since it is subject to the pressure of the most influential groups, whereas the Defined Contributions (DC) system, being actuarially fair, does not allow such influences, thus protecting groups with less political influence. Furthermore, according to the study, in a PAYGO system the political system can be severely stressed by the adjustments required for correcting imbalances, even to the point where democracy itself could be at risk (e.g., pension reforms in Argentina in 2017; pension reform currently under discussion in Brazil).
  • The book also notes that:

(1) One proposal on how to address longevity, or higher life expectancy on retirement, is to raise the retirement age for the younger cohorts, leaving open the possibility for members who opt for early retirement to raise their contribution rates, in order to be able to finance the additional years of retirement resulting from longer life expectancy.
(2) Postponing the retirement age has a counterpart in the situation of the labor market and job opportunities for the elderly. The design of the pension system must allow for partial retirement alternatives that complement a shorter working day and lower pay. It is not fair that the only options for workers are full-time work or full retirement from the labor market.

To download the book, please click on this link (only the Spanish version available).

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