OECD Reviews of Labour Market and Social Policies: Chile 2009

image of OECD Reviews of Labour Market and Social Policies: Chile 2009
This report analyses in detail the implications of recent developments in Chile's labour market and social policy and considers the available policy options from the perspective of OECD countries’ experience.

The report finds that Chile has enjoyed rising living standards over two decades of strong economic growth. The incidence of poverty is now much lower and there is better access to adequate housing, education and healthcare. Nevertheless, Chile’s income distribution remains disturbingly unequal by OECD standards. This is partly due to Chile’s a relatively low employment rate, especially for women, but it also reflects a segmented labour market, where much of the recent job creation has occurred in relatively low-productive sectors. Moreover, despite the existence of an internationally renowned pension programme, Chile’s social protection system as a whole has still a relatively long way to go before reaching the standards of developed countries in terms of effective coverage and capacity to assist needy households.  Chilean policy makers have begun to develop and implement a series of ambitious reforms, intended to promote the twin goals of work and equity.



The Normalisation of Chile's Pension System

Chile replaced its Pay-As-You-Go social insurance pension system in the early 1980s with a private pre-funded system of individual savings accounts which covers old-age, disability and survivor contingencies. Pension reform was successful in many ways: it restored public confidence in pension saving; pre-funding of pensions has contributed to the development of financial markets and economic growth; and projected future public pension outlays in Chile are lower than in many OECD countries (and far less susceptible to the dynamics of ageing populations). However, pension reform failed to achieve its coverage objectives, and many Chilean workers, including many women, youth and low-income workers with low levels of educational attainment, either did not make sufficient contributions to obtain an adequate contributory pension or have no coverage at all. The coverage problems contributed to a major pension reform in 2008, which introduced a basic solidarity pension as of right, and targeted measures to stimulate coverage among workers with no or little pension saving. Reform also aims to develop a third tier of voluntary private pension saving. In all, Chile’s pension system is developing towards the three-pillar pension norm, which is often held as an international benchmark. This chapter discusses the social policy aspects of the reformed pension system and, in particular, the coverage issues which in many ways have proven to be the Achilles heel of Chilean private pension system. 


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