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Chile's underfunded social security system

Jay Hecht
13 November 1997

Folks,

The former chief actuary of our Social Security Administration, Robert Myers points out in the latest issue of "Contingencies" (an actuarial trade publication) that Chile's SS system is in deep actuarial do-do:

Their vaunted "Personal Savings Account System" supposedly avoids unfunded liabilities because a worker only gets a return only on what they contribute. However, the system is way underfunded because of 1) it grants prior-service credits (i.e. credit before there was a private ss system), and 2) grants a mi nimum pension guarantee of 85% of the legal minimum wage for those under 70 and a 90% benefit for those over. Privatized, yeah once they realize that this program represents a "mammoth unfunded liability," they'll really need to privatize!!

Bottom line: While Pinochet's Chicago boys "won the war", the old dictator had to throw a healthy dose of collectivized $'s to make it "work."

Jason