CHILE - The much hailed Chilean pensions model is exportable, but only if country-specifics are taken into account, according to Pedro Corona Bozzo, president of the International Federation of Pension Fund Administrators (FIAP).
Speaking at the joint NAPF/EFRP International Conference in Brussels, Bozzo said that the 21-year old model based on mandatory individual savings accounts could not simply be transferred across borders:
The Chilean system based on the individual savings account can be an alternative if the special conditions of each country are taken into account, he said.
In 1980 Chile replaced its pay-as-you-go (PAYG) system with the new 'savings and individual capitalisation system', whereby the worker can choose the type of pension fund and model. An employee who joined the system in 1981 is now expected to accrue an average 10.9% yield in real terms.
Bozzo attributed some of the model's success to solving the structural failure of the PAYG system by breaking the 'poverty trap', its administration by the private sector and its transparency.
Commenting on the issue of incentive, he added: In this case the worker is dedicated to the system because he or she sees results immediately in accumulated funds.
According to Bozzo, 6.3m of the workforce are now part of the system, although not all members are active. Pension fund assets also now accounted for 51% of GNP. He added that pension fund investments were currently divided between the following instruments - banking (34.3%); government (34.3%); corporates (17.6%), and offshore (13.8%).
The model is also thought to have helped to develop the country's financial markets.
However, questions were raised by Bernard Casey, principal administrator at the Organisation for Economic Co-operation and Development (OECD), who cast doubt on the cost-efficacy of the system, as well as its claims to be a purely private system.
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