Study reveals weight of "solidarity pillar" in replacement rates for women

Thursday, July 19, 2012

Chile's pension system appears to have done well in providing a good level of income to pensioners as a replacement for their salaries but women have not done so well. According to a study commissioned by the local private pension fund manager (AFP) association to the Universidad Católica's engineering services unit Dictuc, the replacement rates were 88% for men and 64% for women for the 26,002 affiliates that retired in 1Q11.

However, taking out contribution of the so-called solidarity pillar for the poorer 40% segment of the population - which was one of the measures created by the 2008 pension reform - the replacement rate produced by the AFP industry alone falls to 72% for men and 37% for women.

The International Labor Organization's (ILO) recommends a minimum target replacement rate of 40%.

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"Individual contributions by themselves are not enough. A certain level of state support is required," Ricardo Paredes, a director at DICTUC and author of the study, told press.

In absolute terms, Chile compares well to other OECD countries, which have an average replacement rate of 68.8%.

But in some of these countries, contributions to the pension system are higher than the 10% Chilean affiliates allocate of their salary to their mandatory pension accounts, according to Guillermo Arthur, head of the local AFP association.

Chile pioneered the concept of a mandatory defined-contribution pension system when it introduced the AFP scheme in 1981 to replace the state-run social security system.