I have been wanting to start writing for our newsletter for months, but the truth is that I never have enough time. Everyday life gets in the way, and I put it off until later. However, after reading last week's news about VAMOS POR EL 100%, I felt it was important to comment on the different pension systems around the world as a way of contributing to the discussion.

You may not remember, but in March 2006, the Marcel Commission was formed, and as if that weren't enough, in 2015, the so-called Bravo Commission was formed. This, along with other efforts, shows us the importance that the pension system has had for different governments in our country. Many hours of work have been devoted to this, incorporating citizen participation, regional dialogues, surveys, and a great deal of research. 

But... where does that leave us?

While researching pension systems around the world, I came to the conclusion that the work carried out is quite similar to what has been seen in Australia, Norway, Switzerland, Canada, Israel, and the Netherlands.

The Marcel Commission mentioned that the Chilean system was unable to respond to society's demands, making it necessary to reform it, which did not mean destroying the existing system. Global experience showed that the most successful reforms were based on the individual capitalization system, although it called for the creation of a solidarity pillar, an increase in the replacement rate, an increase in the retirement age, universality, intensified competition, greater transparency, improved financial education, strengthening of the voluntary pillar, implementation of a basic solidarity pension (currently +- $160,000 Basic Solidarity Pension (PBS) – SP. Superintendency of Pensions – Government of Chile (spensiones.cl)) and establish criteria for the sustainability of the system over time. Ten years later, all these concepts were taken up by the Bravo Commission, which also reached similar conclusions and put forward three proposals, ranging from maintaining the current system to returning to a pay-as-you-go system.^[1].

Currently the best pension system in the world (as ranked by the Mercer CFA Institute Global Pension Index) is that of the Netherlands. It has a universal basic pillar, which functions as a pay-as-you-go system, in which workers contribute 18.25% (10% in Chile), plus a second occupational pillar, where companies, together with workers, contribute between 4% and 7% of the salary to a private pension fund (which can be withdrawn under certain conditions) and an individual savings fund. With this, they hope to achieve replacement rates of 70% of their last income before retirement, with a cap of 100%. Additionally, there is the Australian system (Age Pension Age Pension – Services Australia ), which has a solidarity pillar (financed through taxes and which can reach USD 1,162 per month), along with another pillar, called Superannuation, which works the same as our system. However, there is a small difference in that you can choose from more than 85 different funds (for example, you can buy an ESG fund). Finally, it also incorporates a voluntary pillar.

With so much local and international experience (OECD), I am concerned to see how some politicians have proposed withdrawing all funds, with the slogan "LET'S GO FOR 100%." I believe it is more sensible to reach an agreement (common minimums?) that reduces uncertainty in this area. This should not only be done for pensions (more than 20 years of studies and, let's face it, waiting), but also for the positive externalities it generates for the economy, where a deep financial system has enabled a large part of the population to access cheap credit to buy their long-awaited home. As an example, I remember that 30 years ago, mortgage rates were quoted at UF +10% (1990), while today they can easily be found at UF +3%. I believe that in terms of well-being, the benefits have been much greater. In addition, a deeper capital market opens up more financing possibilities, allowing us all to aspire to become entrepreneurs.

[1] With which I disagree, although, as a result of the 2008 crisis, many Eastern European countries migrated to it.

Francisco Muñoz 

Partner – Commercial Director of Fynsa