Privatization advocates paper over very serious problems with Chile s social security program. While the full impact of privatization cannot be known until the system completely matures, a number of troubling issues have already arisen. Pension fund management fees are exorbitant. Non-participation threatens the overall viability of the system. Individual accounts replace less of low-income workers and women s wages.
Private accounts leave workers susceptible to market downturns.
Given the distinct social, political, and economic differences between Chile and the U.S., the relevance of Chile s privatization experience to U.S. policy-makers is debatable. While this concern is legitimate, we would be remiss if we failed to take note of the results of Chile s 19-year social experiment. A Need for Reform By all accounts, Chile s public pension program was foundering in the 1970s. The system was extremely complex, consisting of over 100 different retirement regimes. Contribution rates, retirement ages, and benefits all varied by type of occupation.