The economic effects of the pandemic have been devastating. In 2020, Chile’s GDP fell by 5.8 percent, the largest decline since the debt crisis. Since March, and after weathering the initial shock of the social unrest, the labor market has been deeply affected. At the height of the pandemic, 1.8 million jobs were lost, and as of this writing, 925,000 of our fellow citizens who are willing to work cannot find employment.

In this context, and in addition to the measures implemented by the government (which has mobilized more than US$30,000 million in resources, of which more than US$8,000 million corresponds to fiscal spending already executed), two bills have been debated and approved that allow pension system participants to make withdrawals from their funds. These measures have been dubbed “10% withdrawals,” but the truth is that, in reality, they allow the majority of members to withdraw much more than 10%. Moreover, to date, nearly 3 million people have withdrawn 100% of their savings, resulting in more than 4 million people in Chile having a zero balance in their pension funds. This situation—whether under this system or another—will have significant impacts on the pensions we will be able to pay to our senior citizens in a few decades. I repeat: whether under this system or another.

This is how, a year after the adverse effects of COVID-19 began in our country, a bill has been introduced that would allow a third withdrawal. Among the reasons cited is the need to continue allowing the most vulnerable and the middle class to cover their expenses during this period when mobility is once again severely restricted. I don’t think any reader could object to a rationale like that, especially since many might be facing a similar situation. However, regardless of the intention, is this the right tool?

The answer one gets from looking at the data is mostly negative. It is true that there may be special cases in which the objective is met (the limited disaggregation of public data prevents us from conducting such an analysis), but for the vast majority of potential beneficiaries, the amounts available for withdrawal would be smaller, or there would simply be nothing to withdraw. In terms of age, those without savings are predominantly under 35, due to the short time they have been saving and also because of lower wages. But there are also older people affected by gaps in their contribution history (particularly women), low wages, and informal employment. Do these characteristics match those of our lower-income compatriots? Unfortunately, the answer is yes. Therefore, withdrawals will primarily benefit those with more savings, a higher frequency of contributions, and higher wages.

When evaluating public policies, it is important to distinguish between the motivations behind them and the tools used to achieve them. There is nothing worse than becoming attached to the tools themselves (or using them for other reasons, such as to dismantle the AFP system), because that can lead us to lose sight of the original problem. Hopefully, our members of Congress will understand this.

Nathan Pincheira 

Chief Economist at Fynsa