Individually-funded programs and their role in the improvement of pensions and

the economic development

GUILLERMO ARTHUR

FIAP’s PRESIDENT

PRESENTATION PREPARED FOR THE KYIV

INTERNATIONAL ECONOMIC FORUM 2016

(KIEF), TO BE HELD ON OCTOBER 6TH AND

7TH, 2016 IN KYIV, UKRAINE.

Elderly (65+) in 2015 & 2050(% of the population)

Source: World Population Prospects: The 2015 Revision (UN Population Division, 2016).

Unreported Pension Debt 2009-2010 (% GDP)

Unreported debt of

countries that

adopted individually-

funded pension

programs will

disappear over time.

Almost 9 times the

country’s production

within a year

* For Ukraine, World Bank estimations, 2004.** For Chile, Mexico and Peru, World Bank estimations, 2010.Source: Edwards (2010) and World Bank (2004).

Source: FIAP, Dec. 31, 2015

LATAM Average = 7.31%

Real historical cumulative profitability (annualized) of Pension Funds – Dec. 2015 Chile

Pension Funds have had excellent profitability

In Chile, funds have the 34% of the stock of national debt; 58% of the financial system’s debt;37% of the companies’ bonds; 6% of stock.

Increased deepening of capital market

Source: Elaborated by FIAP on Dec 31, 2015.

Pension Funds’ Portfolio per economic sector (Dec. 2015)

Pension Funds reach every economic sector

Source: FIAP, Dec. 31, 2015.

State35%

Corporate13%

Financial15%

Foreign33%

Others4%

Colombia

State23%

Corporate15%

Financial18%

Foreign44%

Others0%

Chile

State47%

Corporate32%

Financial2%

Foreign16%

Others3%

Mexico

State18%

Corporate

23%Financial

19%

Foreign40%

Others0%

Peru

It is possible due to the increasing reduction of the public sector deficit (as a result of financing anunsustainable PAYGO system).

The period of highest transition deficit in Chile is over: deficit reached a maximum of 4% of GDP until 2000,then it decreased to a 2.6% of the GIP and it will disappear in the long term (in 2050 the deficit will disappearaccording to Arenas et al., 2009).

A direct benefit that it is being harvested: release of state resources for strengthening the “Pillar Zero” (solidaritypension system created by the Reform of 2008).

Effect on Savings and Investment

Source: SURA (2013) , “Role of the private pension system in the economic development of Latin America, experiences of Colombia, Mexico, Chile and Peru”.

4,21% 3,97%

2,09%

5,02%

0,37% 0,58%

0,31%

0,33%

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

Chile Colombia Mexico Peru

Role of individually-funded systems in GDP annual growth

Rest Impact on Individually Funded System

4,58% 4,55%

2,40%

5,35%

Total GDP Growth Total GDP Growth

Total GDP Growth

Total GDP Growth

Reform's effect on GDP

Reform's effect on GDP

Reform's effect on GDP

Reform's effect on GDP

% of GDP annual

growth explained

by pension reform

8.08% 12.75% 12.92% 6.22%

(i) Housing: About one million and a halfhouses are financed with Pension Funds(PFA and Life Insurance Co. through thebank). Mortgage loans are offered forterms of up to 30 years.

(ii) Infrastructure: About US$ 7.000 millonof the PFs are invested on the electricalsector, US$ 630 millon intelecommunications sector, and aboutUS$ 2.000 millon are invested onconcessions (highways, airports,hospitals).

Impact on real economy

THANK YOU!

9