The debate in recent days has focused, in different ways, on the pension system. Today, there are two bills being discussed in Congress related to this issue: the so-called "fourth withdrawal" and the short pension law. In both cases, we have heard a great many arguments, which on many occasions have surely caused headaches and disbelief among those who know something about social security systems.

There are many, but today I would like to refer to the concept of compulsory savings. During the discussion of the short pension law, I heard a congresswoman refer to it negatively, saying that it was "a misappropriation of the wages of Chilean workers." This argument has also been used by some citizens, under the precept that "if it's my money, I can do what I want with it." The curious thing is that eliminating compulsory savings means not wanting a social security system, thinking that people alone are capable of taking responsibility for their future and their decisions (reaping the benefits, but also paying the costs). In other words, the freest of free market systems, without intervention, without regulation: 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 demonstrated, both under traditional and behavioral economic principles, that due to our inconsistency in valuing the future over the present (I'll start my diet on Monday, until Monday comes), we do not allocate the resources that our future selves will need to finance their consumption to savings. 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 responsibility for their decisions, but as a society we have decided that we do not want that and that, in one way or another, we must all take care of certain needs of retirees. In fact, if it is not by financing a pension, it is by financing health, housing, and assistance systems, etc. 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 by our taxes.

Thus, in the 19th century, Germany saw the birth of the first social security system as such, even though various systems of assistance for those who had passed their productive age had existed since the dawn of humanity. In 1881, Chancellor Otto von Bismarck created an insurance scheme in the form of income payments in the event of illness or old age, which, curiously, was introduced to appease the social demands of the trade unions and halt the advance of Marxist ideas. Since then, we have developed different ways of providing for 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 tax revenues. I don't know about you, but I am not aware of any voluntary taxes. The latter depend on mandatory contributions that each worker makes to their own fund, which is managed by a third party.

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

Nathan Pincheira 

Chief Economist at Fynsa