Comments to “Incentives under the New Pension Solidarity Pillar in Chile”

by Eduardo Fajnzylber

Rafael PleitezFusades

Four main points

1. The problems of poverty among elderly adults and the low extension and quality of pension coverage.

2. The relevance of the New Solidarity Pillar3. The incentives effects4. Lessons from the Chilean case

Poverty and low extension and quality of pension coverage

1. Vulnerability is one of the most important dimension of poverty in L.A.

2. To mitigate poverty among elderly adults through the pension system is just one element

3. In Chile, around 50 percent of the population were not going to be able to finance a minimum pension

The relevance of the NSP

1. Chile has been a pioneer in the process of a comprehensive reform of the pension system: 1980 and 2008

2. An important condition that allow to implement the NSP was the fiscal space that was being created by the reduction in the transition costs generated by the original reform and the fiscal discipline based on structural surpluses

The incentive effects

1. The contribution of this paper is to highlight and to evaluate the incentive effects of this new scheme through the income and substitution effects

2. The PBS and the APS has a positive effect on the extension and quality of pension coverage, but it has negative effect on incentives….29 percent

3. Still, it is necessary to study if this negative effects can produce important changes in the pension behavior of Chilean workers

Lessons from the Chilean case

1. Many Latin American countries need a comprehensive reform of their pension system in order to improve the extension and quality of the pension coverage

2. But it is more difficult, for instance the case of El Salvador

3. The fiscal cost of the reform and the fiscal space are critical issues

4. More studies are needed in order to know the impact of this type of reform on pension behavior.