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Cold facts about Chile

After hearing Herman Cain crowing about the success of privatization of Chile’s version of Social Security, I feel some truth should be brought to the subject. At first, Chile’s returns appear respectable, but not after factoring in management fees of 16 to 20 percent.

In 1994, more than half of their programs incurred losses. Financing of this program required cutting public programs, raising taxes, reducing lifetime benefits, eliminating pensions, selling government assets and issuing government debt/bonds.

Workers must contribute 10 percent of wages for retirement and another 3 percent to cover life and disability insurance. Workers were promised benefits replacing 70 percent of their wages, but received closer to 20 percent. A market downturn in 1998 left officials urging workers to defer retirement indefinitely.

According to U.S. Social Security Trustees projections, our system is fully funded until 2037. If economic growth continues at the rate it has for the past 50 years, it will be funded indefinitely and with minor changes funded past 2075. So why are conservatives pushing for privatization?

From 1998 to 2010 private managers in Chile received about $240 billion for management and administrative fees, commissions and profits. The real lesson from Chile: Buyer beware.

Joanna McPherson

Spokane


 

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