Fynsa
This week I had the honor of sharing a conversation with Soledad Hormazábal, researcher at Horizontal and member of the pension technical roundtable, to gather her impressions on the agreement reached in the Senate to move forward with a reform of the pension system.
Our intention was not to describe what had been achieved, but rather to make a qualitative analysis of the most important points to be included in the eventual new law.
We start with a question that I feel is rarely asked. In general, we start with the solutions, but I think it is extremely important to agree on the question we want to answer. This is not a trivial exercise. Why is a reform of the pension system necessary? Soledad told us that -first of all- what was relevant was to understand that the alternative of doing nothing was unfeasible. Not only for the pensions themselves, but also for public finances and even for the social validation of a social security system.
The increase in life expectancy, pension gaps, the evolution of salaries, the differences in the female and male labor markets, retirements, etc., made it urgent to take measures that could - at least - remedy these aspects, both for current and future retirees.
Among the positive things, our guest speaker highlighted the increase in the contribution. Increasing the savings rate is a fundamental aspect for increasing future pensions, but also because of the positive externalities that this generates for the capital market, for financing costs, investment projects and even growth. In addition, it validates individual capitalization as the best mechanism in an environment of higher life expectancy after retirement, lower birth rates and growing social demands for fiscal spending.
On the less positive side, he regretted that it was not possible to adjust the current retirement ages or to correct the difference between men and women in this regard. Also, in his opinion, the eligibility requirements for certain benefits could have been higher to encourage participation in the system or, failing that, could have been made gradual as the markets adjusted to the new reality.
As for the uncertain aspects, those related to the operation of the bidding processes for 10% of the members' portfolios to improve competition were pointed out, considering the inertia of the members to remain in an administrator, regardless of the commission charged. As there is a mechanism of forced savings (the key axis of any social security system, not only of the individually funded system), the State should make every effort to ensure that the price - in this case, the commission - reflects as close as possible to what would be a competitive price. It was pointed out that this mechanism is not compatible with the existence of a state investor, due to a question of incentives; therefore, an eventual project creating such an institution would be counterproductive and contrary to the legislators' spirit of understanding.
Undoubtedly, this is a topic with many more issues to be addressed, especially those related to impacts on the capital markets, which are surely of interest to our clients. However, it is imperative to have more certainty about the "details" (let's not forget that the devil is in the details) in order to better project impacts on prices, rates and others.
Finally, we would like to thank Soledad Hormazábal for joining us and for giving us her expert vision on the subject, which she was also able to participate in the debate and the subsequent agreement.
You can review our conversation in this podcast.
