How to Integrate Disability Benefits into a System with Individual Accounts: The Chilean Model

Published: 2005
Project ID: UM05-13


Chile offers a unique case study of the joint functioning of a national retirement system with private accounts and a national disability insurance program with both public and private elements. The Chilean system uses a worker’s retirement savings account as part of his disability insurance, but if the worker becomes disabled, government tops up the account to a specified defined-benefit amount. The latter is accomplished primarily through the private insurance market, but government provides back-up guarantees. The individual account, in effect, does double duty as an instrument of retirement savings plus disability and survivor’s insurance. This has the effect of keeping costs down and making the system less sensitive to demographic shocks, while the defined-benefit top-up reduces risk to the worker. The object of this study is to examine how well this mixed public-private, partially funded system has performed and to evaluate whether Chilean experiences provide useful lessons for U.S. and other countries.


Estelle James