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Global Development Institute

WP 214/2015

A Just Retirement Future for Chilean Workers: Social Insurance or Private Savings?

Silvia Borzutzky and Mark Hyde

This article addresses a recurring debate in social policy analysis, but with a contemporary twist. Which model of pension provision is most likely to augment the financial well-being of Chilean workers in retirement: social insurance or private savings? The analysis developed here evaluates both models against the requirements of justice and poverty reduction. The neoliberal rationale for pensions privatisation is typically articulated as a synthesis of deontological and consequentialist imperatives, emphasising the centrality of the individual’s inalienable rights, but permitting a degree of intrusive paternalism to diminish the prevalence of economic disadvantage among retirees. Our analysis of empirical evidence regarding pension design and outcomes in Chile suggests that privatisation has failed to meet the objectives that are shaped by this normative repertoire and in fact it has contributed to keeping almost 20 percent of the retirees below the poverty level. While it represents a fundamental departure from the free market model of neoliberalism, we find that a well-designed social insurance arrangement that is universal in scope, and redistributive, would augment the freedom of Chilean workers and also reduce poverty.