First-Round Impacts of the 2008 Chilean Pension System Reform

Authors

Abstract

Chile’s innovative privatized pension system has been lauded as possible model for Social Security system overhauls in other countries, yet it has also been critiqued for not including a strong safety net for the uncovered sector. In response, the Bachelet government in 2008 implemented reforms to rectify this shortcoming. Here we offer the first systematic effort to directly evaluate the reform’s impacts, focusing on the new Basic Solidarity Pension for poor households with at least one person age 65+. Using the Social Protection Survey, we show that targeted poor households received about 2.4 percent more household annual income, with little evidence of crowding-out of private transfers. We also suggest that recipient household welfare probably increased due to slightly higher expenditures on basic consumption including healthcare, more leisure hours, and improved self-reported health. While measured short-run effects are small, follow-ups will be essential to gauge longer-run outcomes.

Key Findings

  • We evaluate the impacts of the 2008 Chilean Pension reform by comparing household survey data from before (2006) and after (2009) the system changed.
  • While the poor in 2009 seemed less-well informed about the reform compared to non-poor respondents, those who lived in a poor household with a member age 65 and over were more likely to have heard of the new “basic pension.”
  • Targeted poor households with elderly members received about 2.4 percent more household annual income, with little evidence of crowding-out of private transfers.
  • Recipient household welfare probably increased due to slightly higher expenditures on basic consumption needs, including healthcare and leisure. They also reported better self-rated health.

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Project

Paper ID

WP 2011-245

Publication Type

Working Paper

Publication Year

2011
pavement-enterprise