GLOBAL – The architect of Chile’s pension reform, José Piñera, says demographic “megatrends” will accelerate the crisis in pay-as-you-go pension systems.

“Global demographic megatrends, such as longer life expectancy and reduced fertility rates, will accelerate the crisis of pay-as-you-go pension systems,” the former Chilean labour minister said.

Piñera added: “Today, fewer workers have to support more and more retirees. Since increasing payroll taxes generates unemployment, sooner or later promised benefits have to be reduced, a tell-tale sign of a bankrupt system.”

Writing in the first issue of the Global Report on Aging published by AARP, the former American Association of Retired Persons, he said that regardless of whether benefits fall via inflation or via legislation, the result is the same – “anguish” about old age.

Piñera was responsible for a 1980 law that brought in a privately managed personal retirement account. He said that 95% of workers chose the PRA, which resulted in “privatisation from below”.

However, Dalmer Hoskins, secretary general of the International Social Security Association, said that there is no real saving in total pension costs achieved by privatising public pension programmes.

“There is no evidence that enhanced economic growth followed the privatisation of public pension systems,” Hoskins writes in the same report.

And he points to recent events in Argentina, which adopted elements of the Chilean model, as demonstrating that privately managed pension plans are not immune from economic downturns or political manipulation.

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