The debate of the last few days has been focused, in different aspects, on the pension system. Today, two bills are being discussed in parliament: the so-called "fourth retirement" and the short pension law. In both, we have heard a great number of arguments, which on many occasions have surely caused headaches and disbelief to those who know something about the social security systems.

There being many, I would like to refer today to the concept of mandatory savings. During the discussion of the short pension law, I heard a deputy refer negatively to it, since it was "a misappropriation of the salaries of Chile's workers". This argument has also been used by part of the citizenry, under the precept that, if "the money is mine, I can do what I want with it". The curious thing is that, eliminating forced savings is not wanting a social security system, thinking that people alone are capable of taking responsibility for their future and their decisions (obtaining its benefits, but also paying the costs). In other words, the freest of free market systems, without interventions, without regulations: pure and simple laissez faire.

However, for various reasons, people do not voluntarily save enough to take care of their golden years. It has been shown, under both traditional and behavioral economics precepts, that due to our inconsistency in valuing the future versus the present (I start my diet on Monday, until it is Monday), we do not allocate to savings the resources that our future selves will require to finance their consumption. In addition, we face various risks, such as economic, longevity, behavioral, etc. Therefore, in general, citizens under-save for their old age. We might think that it is their problem, that they have to take charge of their decisions, but as a society we have decided that we do not want that and that, in one way or another, we all have to take care of certain needs of retirees. In fact, if it is not by financing a pension, it is by financing health, housing, assistance, etc. systems. In other words, at the end of the day, someone other than those who made the private decision ends up paying for part of that decision: The State. And the State is all of us and it is financed with our taxes.

Thus, in the 19th century, in Germany, the first social security system as such was born, despite the fact that since the beginning of mankind there have existed various systems of assistance to those who exceeded their productive age. Chancellor Otto von Bismarck, in 1881, created an insurance in the form of annuities to be paid in the event of illness or old age, which, curiously, was established to placate the social demands of the trade unions and to stop the advance of Marxist ideas. From there, we have developed different ways of taking care of pensions, ranging from pure pay-as-you-go systems to individually funded systems. In the former, pensions are financed from the nation's general funds, which come from taxes. I don't know about you, but I don't know about voluntary taxes. The latter depend on the mandatory contributions that each worker makes to his or her own fund, which is managed by a third party.

If you look, without showing any preference for one system or another and simply under the premise that we want a social security system (because, mind you, we might not want it), contributions should be mandatory because as individuals we under-save, we face risks and, many times, we lack incentives to do so voluntarily. Therefore, either because there is an intergenerational social contract or because you have to contribute to an account for your old age (and only for this), saving in any pension system should be mandatory.

Nathan Pincheira 

Chief Economist of Fynsa