Thus a different set of incentives prevails once affiliates become eligible for the minimum guaranteed annuity. If additional contributions to the pension system are simply savings, and alternative, perhaps cheaper, more flexible forms of saving (both market and non-market based) are available, individuals may prefer to diversify their retirement portfolios by saving outside the system once they have secured the formal pooled benefit. Admittedly, additional contributions beyond the minimum eligibility threshold are not purely savings, since affiliates are still purchasing pooled coverage against disability and death. However, market based and non-market based pooling instruments to cover death and disability may also be available, and may offer individuals a greater degree of choice as to just how much protection against these contingencies they would like to purchase.<sup>3</sup> 1 If a sufficient number of alternative market and non-market instruments to save and insure were available, additional contributions to the government mandated system might be redundant.

If c denotes an individuals' contribution history (in months), another hypothesis can be added to take account of the different set of incentives that prevail once affiliates become eligible for the minimum pooled benefit guaranteed by the government.

|Ceterisparibus...|Null|Alternative|
|---|---|---|
|6.Individualsdonot reducetheircontributionsto<br>theformalsysteminfavorofalternativesaving<br>oncethe formalpooledbenefithasbeensecured.|_Ho_***_sF_**_/ass_=0<br>foraffiliates whose|_H_***_sF_**_/lss< 0_<br>for affiliates whose|
||_c_2240months|c>240months|

# V. The Data

Analysis of participation in the reformed social security system in Chile has been, until now, constrained by the limitations of the CASEN survey. Several previously unavailable variables were constructed for this analysis from data collected in a risk and social insurance survey (in Spanish, _Encuesta de Previsi6n de Riesgos Sociales - PRIESO)_ conducted in Santiago, Chile in December 1999 and January 2000. The PRIESO was specifically designed to identify the strategies taken by individuals and households to mitigate a series of risks to income. In addition to traditional questions 31 Banks and insurance companies in Chile offer a growing selection of savings and insurance products. Term life insurance policies _(seguro de vida con ahorro),_ available since 1995, may be a competitive alternative insurance and investment instrument to the pension system. Private insurance companies in Chile report that, while it is likely that the prices of these policies are prohibitive for poorer households, there is considerable demand for these life insurance/savings facilities among middle- and lower-income groups - especially younger age cohorts for whom premiums are low. _Santander_ (a private insurance provider) offers a policy _(Super Futuro),_ which guarantees a market rate of return on the savings portion that will not fall below UF+4%. Policy holders can insure up to a certain amount in benefits in case of death without having to undergo medical examination. Partial withdrawals can be made from the savings account after three years of paying premia. At the legal age of retirement, the policy holder can withdrawal the full balance of his savings. Although premia are taxed, the returns to the savings account and withdrawals are tax exempt. In a casual poll of taxi drivers in Santiago, term life insurance policies were frequently mentioned as alternatives to an AFP retirement account.

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