CHILE - The Organisation for Economic Co-operation and Development (OECD) has called for pension reform in Chile to off-set uncertainty about the future cost of the guarantee of a minimum pension.
The OECD’s recommendation, made in its economic survey of Chile 2005, is based on data which found that coverage of the pension system, and the density of contributions, are low.
Only 55% of the labour force currently contributes to a pension fund and of these, one-half do so for no more than 60% of their working lives, the OECD claims.
This has led to uncertainty regarding the resulting cost to the budget of a minimum pension guarantee, it said, for those workers who have contributed at a level that is insufficient to ensure a retirement income at or above the minimum pension.
With regard to Chile’s “assistance pensions”, the OECD said they are not an entitlement and do not pose a fiscal risk per se, however the organisation warned the fact that the value of this pension is currently about one-half of that of the minimum pension was in itself a discrepancy which may not be politically sustainable going forward.
Efforts on Chile’s part to resolve these issues would most likely affect the incentives for individuals to save for retirement and in turn the density of contributions and the cost to the budget of alternative social protection policies over the longer term, said the organisation.
By way of reform, the OECD proposed that Chile find an, “appropriate balance between the incentives for saving for retirement and the desirable breadth of social protection.”
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