Assessing Chile's Pension System: Challenges and Reform Options

52 Pages Posted: 15 Feb 2022

See all articles by Christopher Evans

Christopher Evans

International Monetary Fund (IMF)

Samuel Pienknagura

International Monetary Fund (IMF)

Date Written: September 2021

Abstract

Chile’s pension system came under close scrutiny in recent years. This paper takes stock of the adequacy of the system and highlights its challenges. Chile’s defined contribution system was quite influential when introduced, and was taken as an example by other countries. However, it is now delivering low replacement rates relative to OECD peers, as its parameters did not adapt over time to changing demographics and global returns, while informality persists in the labor market. In the absence of reforms, the system’s inability to deliver adequate outcomes for a large share of participants will continue to magnify, as demographic trends and low global interest rates will continue to reduce replacement rates. In addition, recent legislation allowing for pension savings withdrawals to counter the effects from the COVID-19 pandemic, is projected to further reduce replacement rates and increase fiscal costs. A substantial improvement in replacement rates is feasible, via a reform that raises contribution rates and the retirement age, coupled with policies that increases workers’ contribution density.

Keywords: replacement rate, savings withdrawal, contribution rate, reform option, fiscal cost, Pension spending, Pensions, Retirement, Aging, Women, Global

JEL Classification: D14, H30, H55, J32, J26, J14, J16

Suggested Citation

Evans, Christopher and Pienknagura, Samuel, Assessing Chile's Pension System: Challenges and Reform Options (September 2021). IMF Working Paper No. 2021/232, Available at SSRN: https://ssrn.com/abstract=4026432

Christopher Evans

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Samuel Pienknagura (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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