Can defined contribution pensions survive the pandemic? The Chilean case

The impact of the COVID-19 pandemic threatens viability Chile’s defined contribution (DC) pension system, undermining its financial foundation and exposing vulnerability to political risk. crisis led approval three rounds emergency withdrawals 10 per cent savings (as April 2021). Utilizing funds during an economic is neither new nor uncommon – Great Recession, several countries in Central Eastern Europe diverted DC cope with fiscal stresses. As Chile prepares draft a constitution, debates about efficiency equity system are ongoing. In this regard, as response demonstrates, has failed live up promise ending risk preventing diversion for other expenditures. L’incidence de la pandémie menace viabilité du système pensions à cotisations définies Chili, en mettant mal ses ressources financières et révélant sa vulnérabilité face aux risques politiques. En raison crise COVID-19, les Chiliens ont pu effectuer, trois reprises, des retraits d’urgence pour leur épargne (à partir d’avril La libération fonds pleine économique n’est pas nouvelle ni unique: durant Grande Récession, plusieurs pays d’Europe centrale l’Est détourné l’utilisation faire pression fiscale. À l’heure où le Chili s’apprête rédiger une discussions concernant l’efficacité l’équité vont bon train. ce sujet, comme l’ont révélé mesures politiques prises pandémie, parvenu tenir promesses écarter politiques, empêcher détournement d’autres dépenses. Los efectos pandemia COVID‑19 amenazan viabilidad del sistema pensiones cotización definida, puesto que menoscaban su situación financiera y exponen vulnerabilidad riesgos políticos. ha llevado aprobación, tres ocasiones con carácter emergencia, retirada por ciento los ahorros para las (a abril Recurrir fondos durante una económica no es nuevo inusual. Durante Gran Recesión, varios países Europa Oriental se emplearon definida hacer frente presión fiscal. Mientras prepara redactar nueva constitución, prosiguen sobre eficiencia equidad pensiones. A este respecto, como han manifiesto medidas políticas adoptadas pandemia, el cumplido promesa acabar políticos evitar desvíen otros gastos. Die Auswirkungen der Coronapandemie bedrohen die Funktionsfähigkeit chilenischen Rentensystems mit festgelegten Beiträgen, da Pandemie Finanzgrundlage aushöhlt und das System politischen Risiken ausgesetzt hat. Aufgrund Coronakrise wurden drei Runden von Notfallbezügen Höhe zehn Prozent Rentenansparungen genehmigt (Stand Verwendung wirtschaftlichen Krisenzeiten ist weder neu noch ungewöhnlich. Während Großen Rezession zweigten verschiedene Länder Mittel- Osteuropas Vermögenswerte aus Renten Beiträgen ab, um Haushaltsengpässe zu meistern. Da vor dem Entwurf einer neuen Verfassung steht, wird rege über Effizienz Gerechtigkeit diskutiert. Wie Reaktionen auf jedoch zeigen, Rentensystem seinem Versprechen, politische abzuwenden Abzweigung Rentengeldern für andere Ausgaben verhindern, nicht gerecht geworden. Пандемия ставит под вопрос жизнеспособность пенсионной системы в Чили, которая основана на уплате фиксированных взносов: она подрывает её финансовую основу и делает уязвимой политическом отношении. В условиях кризиса трижды был одобрен экстренный вывод со счетов 10% пенсионных накоплений (по состоянию апрель 2021 года). использовании фондов фоне экономического нет ничего нового необычного: во время мирового несколько стран Центральной Восточной Европы перенаправили средства из с уплатой взносов, чтобы справиться финансовой нагрузкой. то как Чили разрабатывается проект новой конституции, продолжаются дебаты об эффективности справедливости существующей системы. связи этим принимая внимание политическую реакциую пандемию, можно заключить, что система, основанная не смогла выполнить свои обязательства по устранению политических рисков предотвратить перенаправление средств покрытие других расходов. 冠状病毒大流行病的影响威胁着智利固定缴费养老金计划的可行性, 削弱了计划的财政基础, 并暴露了计划易受政治风险影响的脆弱性。冠状病毒危机导致批准了三轮紧急提取10%的养老金储蓄(截至2021年4月)。在经济危机期间利用养老金基金既不新鲜也非罕见——在大衰退时期, 中欧和东欧的多个国家挪用了固定缴费养老金基金以应对财政压力。随着智利准备起草一部新宪法, 关于养老金计划效率和公平的争论仍在继续。在这方面, 正如大流行病的政治响应所表明的那样, 固定缴费计划未能兑现承诺, 即结束政治风险和预防养老金基金用于其他支出。 يهدد تأثير جائحة استدامة نظام المعاشات التقاعدية ذات المساهمة المحددة في الشيلي، مما يقوض أساسه المالي ويجعل هشاشته عرضةً للمخاطر السياسية. وأدت إلى الموافقة على ثلاث جولات من عمليات السحب الطارئة بنسبة المائة مدخرات (في نيسان/أبريل إن استخدام صناديق التقاعد أثناء الأزمة الاقتصادية ليس بالأمر الجديد ولا غير المألوف؛ فخلال فترة الركود العظيم، استعملت العديد البلدان وسط أوروبا وشرقها لمواجهة الضغوط المالية. وبينما تستعد الشيلي لصياغة دستور جديد، لا تزال المناقشات حول كفاءة وعدالة جارية. وفي هذا الصدد، وكما تشير الاستجابة السياسية للجائحة، فقد فشل الوفاء بوعده المتمثل إنهاء المخاطر ومنع تحويل أموال نفقات أخرى. O impacto ameaça viabilidade do aposentadoria contribuição (CD) Chile, minando sua base financeira e expondo vulnerabilidade ao risco político. levou aprovação três rodadas saques emergenciais poupança previdenciária uso dos fundos pensão uma econômica não é novo nem incomum Recessão, vários realocaram os CD enfrentar tensões fiscais. No momento em o elaborar nova constituição, eficiência equidade estão pauta. Nesse sentido, demonstra resposta política cumpriu promessa com político impedir utilização outras despesas. 2019, major social movement shook foundations protesters demanded better pensions, education health care. government responded initially force, but later agreed referendum that promised drafting constitution could put end model embedded 1980 Constitution had been imposed by military dictatorship. few months later, following outbreak 2020 subsequent crisis, workers access their fund savings. After much legislative debate conflict executive branch, were permitted from accounts help meet immediate basic needs. provided relief, depleted capital where make mandatory contributions individual accounts. demands not only pose threat represent devastating failure. For succeed, must be safeguarded decades, one selling points switching public benefit (DB) private would securely held accounts, outside reach meddlesome politicians short-term, election-oriented time horizons. failure Latin America’s DB systems was often blamed on who placed gain over long-term fiduciary responsibility (Piñera, 1999). such, eliminating through introduction funded fundamental argument iconic 1981 reform (Acuña Iglesias, 2001). Yet, received early retirement we discuss, fact have also American previously Recession demonstrates that, intended subject Orszag Stiglitz (2001) Beattie McGillivray (1995) forecast survive latter noting “in situation adversity it difficult believe find method exerting control investments these institutions” (Beattie McGillivray, 1995, p. 17). fact, governments taking rule exception. security policies date 1920s, when first set implemented context socioeconomic upheaval (Borzutzky, 2002). Over time, Mesa-Lago (Mesa-Lago, 1978), role interest groups, specifically those involved core activities, explain disarticulated fragmented growth between 1920s 1960s. By 1970s, 70 population covered 600 funds, each own benefits rules. outcome expensive unequal substantial few, inadequate many 1978). expansion democracy mid-twentieth century facilitated groups exercised power labour organizations elected representatives, especially left-wing parties (Pribble, 2013). On 11 September 1973, coup terminated both Chilean existing policies, replacing market-inspired reforms. fully Pinochet dictatorship transferred administration private-sector Administrados Fondos Pensiones (AFPs). All required contribute account employer’s eliminated, creating for-profit, compulsory, privately administered system. pre-existing publicly (Cajas prevision) terminated, except police which maintained generous programmes. countries, criticized grounds equity: coverage inadequate, fees high, managers earn large profits markets weak competition, women systematically lower (Solimano, 2017; Borzutzky Hyde, 2016; Mesa-Lago, 2014; Kritzer, Kay Sinha, 2011). Kotlikoff, referred “design flaws” Chilean-style systems, included “exorbitant management can range 1 2 lifetime earnings”; exploit economies scale collection, record keeping, investing annuitization; inability/failure diversify domestic investment; enrol fractions informal-economy (Kotlikoff, 2008). regulatory framework, protects single-purpose AFPs, contributes perpetuation flaws High excessive linked competition AFP market. While market meant spur efficiency, became highly concentrated: number AFPs fell twelve six, specialized firms legally permitted, eliminated any possible banks institutions. affiliates pay more than counterparts such Australia Sweden (Tapia Yermo, 2008; 2016a, 76), capture 40 deposits commissions (Riesco, 2018). Consequently, profitable institutions, banks. López (2016) shows “that 25.4 return (ROE) earned industry 2006–2015 4.8 times higher expected prevails industry. practice, 3.5 billion US dollars (USD) USD 4.4 last decade considered “excessive”. concludes “the results study confirm suspicion obtained larger competitive market” (López, 2016, 113). Upon retirement, future pensioner choose options: phased withdrawal, life annuity payout, or combination two. case withdrawal approach, retiree leaves assets invested administrator sets payout according formula takes into retiree’s age, sex marital status. Alternatively, use accumulated purchase insurance company. Despite promises made framers, responsible burden because high transition costs State’s obligation minimum well assistance pensions. During 2006 presidential campaign, conservative candidate, Sebastian Piñera, winner, centre-left candidate Michelle Bachelet, unpopular Shortly after her inauguration, President Bachelet established Advisory Pension Reform Commission, known Marcel proposed expand coverage, improve replacement ratio eliminate old-age poverty 2006, 100). January 2008, Congress approved reform, creation Basic Solidarity (PBS), special women, inclusion independent workers. Dorlach notes, policy design did curtail activities making acceptable (Dorlach, About 1.2 million people qualified PBS pension, significant positive upon targeted poor. There little evidence crowding-out transfers (Behrman al., Moreover, decrease administrative workers, increase voluntary (Borzutzky 2016b, 67). 2008 reforms women. Arza noted, “[g]ender gaps defined-contribution originate at accumulation stage (that is, working life, saving place) (after paid). stage, (and consequently benefits) reflect gender differences earnings participation” (Arza, 2012, 12). Typically, accumulating less men phase having average greater longevity, non-contributory lowers among 2014, 9.7 Chileans registered six while 4.9 active contributors, 998,457 retirees monthly 400 (Arroyo, 2014). there further owing low benefits, increased due continued fees. White Book issued Piñera (2010–2014) estimated 50 48 cent, half below figure (MTPS, Bachelet’s second advisory commission, Presidential Commission System, even rates based gender: 24 (Presidential 2015). comparison, Member Organisation Economic Co-operation Development amount 65.8 (Jimeno, Bravo reported interviewed approve current sought resolve two interconnected problems: found retired 2007 2014 (including receiving BPS), 150, wage. Additionally, same period, value male counterparts. They pensioners were, most, equivalent 34 ten years wages. Those Supplemental Benefit (APS) median 105 133 (Bertranou, pp. 7–8). Of total employed population, 69.3 contributed AFP. However, density affiliated 3 This cited above. BPS 60 31 (Bertranou 2016). According majority members, rate resulted factors including insufficient contributions, charges, Given employee amounts wages employer does fund, recommended least five paid partly, entirely, proposal debated It age 67 ten-year period incentives keep past 2015, 4–18). charges ratio, institutions enter market, way costs. equally establish state-owned not-for-profit administrators, again aim competitiveness survey revealed 69 respondents said they switch (Comisión Asesora Presidencial Sistema Pensiones, 44). members challenges, some recommendations, strengthening solidarity component programme contributory pillar; increasing age; reducing risks uncertainty; gap; competition. split ways came reforms, listed separate proposals aimed incorporating intergenerational solidarity, returning pay-as-you-go 22–27). Ministerial Committee recommendations legislation, until August aftermath massive march organized “No AFPs” (No más Afp) movement, 4 called national pact (Gobierno mandate additional 5 employers dedicated lowest legislation never introduced level issues. Governmental inaction likely intensified radical (Cárcamo, 2016), next administration. Between 1990 mid-2010s, encounter opposition. emergence widespread popular opposition, changed equation protests took place 2016 2019 (Bril-Mascarenhas Maillet, 119). Surveys showed top demand wake largescale October (Centro Estudios Públicos 6). With pandemic, dissatisfaction responses rekindled activity. July 2020, unprecedented permit withdraw provide income source presented if true individuals really “owned” always emphasized, then should given emergency. his opposed demands, arguing withdrawing lead liquidation volume securities harm markets. majorities, President’s allies. Workers certain threshold all funds. permitting signalled reversal milestone, built precedent weaken income. rare defeat industry, actively legislation. December third 2021. adopted rules funding crisis. pattern quite common, noted Table 1. granted exemption European Union’s euro convergence criteria (also Maastricht criteria) exceeding GDP deficit. 2009, Hungary, Poland, Latvia, Lithuania Estonia faced prospect penalties Commission. To targets honouring fiscally burdensome commitments, costs, commitments scaled back. effect, countries. debt financing implicit option “reformers” vulnerable (Drahokoupil Domonkos, 2012). Fultz Polish Hungarian suffered particularly incomplete features key vital function, passed (Fultz, When hit, 2010 nationalization Hungary and, ultimately, Poland 2013, reduced size pillar 2011. Contributions Slovakia, temporary reductions Estonia, Latvia Romania. These dramatic reversals. Drahokoupil Domonkos (2012) describe, hit severe austerity, choice downsize, seeing revenue cases demonstrate governments, facing will utilize order finance citizens personal part broader strategy relief. once more, utilized elsewhere pandemic. United States allowed penalty-free tax-advantaged 401k plans, affected 6,900 year Superannuation years. Once again, general lesson here pension-related available, mitigate associated caused strife real 12.4 year-over-year June unemployment rose 12.2 quarter (Castañeda, 2020). Bank decline 5.5 7.5 (in March 2021, revised 5.8 decline). response, offered series stimulus packages support 4.5 1.8 homes 17 relief package, followed cash credit measures May (Fuentes Sanders, totalled 7.7 GDP; share compared Brazil (6.5 cent) Kingdom (6.2 (IMF, Proponents argued extreme hardship, right belonged State, favoured proponents course, opposing remarked “[t]he protection middle class cannot cost savings, compromising country” (Laing Cambero, Without compensatory measures, instance, woman aged contribution, 5.3 drop pension; man experience drop. female worker earning wage, 8.6 18.8 (depending age); 7.3 13.2 (El Mercurio, 2020b). short, undermine principle If withdrawn reasons become like cumbersome very scheme. moments collective resemble catch-all compulsory programme, far cheaper companies, efficient lower. overwhelming popularity, surveys showing 83 polled supporting