Download file 154 KB Texto completo en español More of: Alejandra Cox Edwards

In 1981 Chile replaced a mature government-run social security system that operated on a pays-as-you-go basis, with a privately managed system based on individual retirement accounts. The elimination of cross subsidies within the system is a source of complex effects on the relative position of women. The estimated defined-contribution pensions are expected to be lower for women than men, because women accumulate funds at a lower pace, can retire 5 years earlier and are expected to live longer than men. However, a close examination of the impact of reform reveals that it brought about significant changes in women's incentives to participate in the labor market, to save, and to use the social security system as a channel for their savings. 1) Under the new system there is no minimum level for contributions to obtain a pension. 2) The new system guarantees a minimum pension (MPG) for those that have contributed a minimum of 20 years. 3) The new system requires married men to build a joint annuity leading to a within-family distribution towards women. In addition, the new system allows widows to keep their own pension benefits in addition to their widow's pension, restoring the marginal benefit of own contributions for working women. 4) The reform gives an increased weight to early years of contributions via compound interest. Overall, the new system is more fiscally sustainable and creates an incentive for greater labor force participation. Which system is preferable? If ones thinks of labor market behavior as immutable and women's place as in the home, some method of subsidizing women in old age may be necessary. But, if one views the role of women as changing and responding to incentives, the new structure is more appropriate way to provide a social safety net while encouraging work and discouraging dependency.