Reforming Latin American pension systems
The article “Reforming Latin American pension systems” by Alberto et. al. includes an explanation of the pension system in Chile, which has got many advantages for the other countries including the developed world to follow. The advantages of this system are explained in detail. The main challenges faced by adopting this system are explained and remedial measures are advocated. The article ends with the expression of scope of better system, which would meet all these challenges.
The pension system was transferred from the public sector to the private sector by introducing mandatory savings account for all the employed individuals in Chile in 1980’s. The system has many advantages like reducing financial burden of the government and to increase security and transparency of the pension fund. The capital market also became strong as a result of this move.
The two challenges of the system are the reduced income replacement rates and non-inclusion of people who are self-employed and other informal workers, which contribute a significant proportion in the population.
The increase of replacement rates could be achieved by improving the technical skills of the managers who handle funds and also by reducing frictional costs. It is necessary to take appropriate strategy to include the unaffiliated people also in the pension system by encouraging then through tax benefits or other promotions such as prizes attached the system.
The paper gives a clear idea of the pension system adopted in Chile that resulted in improving the economy of the country and have addressed the major issues in that system. The author has given his opinions on how to face these challenges so as to make the system more efficient.
What are the characteristics of pension system of Chile?
What are the major challenges to this system?
What are the measures that could be adopted to improve the system?
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