The privatization of the pension system in Chile

Country: Chile
Body: ILO Committee of Experts on the Application of Conventions and Recommendations
Case: 1933 (No. 35) - Chile (Ratification: 1935), etc.) Convention, Old-Age Insurance (Industry
Case number: Observation (CEARC) - Published 100th ILC session (2011)
Year of judgement: 2011

In 1980 Chile reformed its pension system leading to the privatization of the pensions. This reform gave rise to several representation procedures before the Governing Body under article 24 of the ILO Constitution between 1986 and 2001. The Governing Body concluded that Chile’s pension reform did not comply with its obligations under the Old-Age Insurance (industry, etc) Convention, 1933, (No. 35) and the Invalidity Insurance (Industry, etc.) Convention, 1933 (No. 37) and asked the Committee to supervise the implementation of its conclusions and recommendations. These recommendations  “called on the Government to amend the national legislation to ensure that the privately managed pension system established by Legislative Decree No. 3.500 of 1980 is administered by non-profit-making organizations; that representatives of the insured are able to participate in the administration of the system; and that employers contribute to the financing of the old-age and invalidity benefits.” A new reform of the pension system was introduced in 2008. With regards to the application of Convention No 35, the Committee noted that this reform did not substantially change the management system pensions still under private profit-making companies. The Committee noted that the new system still denied workers part of the profits made by their contributions into their capital accumulation accounts. Furthermore, the committee held that the creation of a commission composed of representatives of workers, retirees, public and private institutions did not guarantee the representatives of insured persons their right to participate in the administration of their pension fund. Lastly, the Committee observed that the financing of the pension fund remained exclusively by workers contrary to the principle of solidarity in the financing of social security benefits expressed in social security standards.

Significance

The Committee underlined that pension systems should be governed by social security fundamental principles of solidarity, the sharing of risks, and collective financing coupled with the principles of transparent, responsible and democratic administration by institutions that are not profit making, with the participation of the representatives of the insured persons. With regards to privatization of pension systems, the Committee recognized that “the management of the system by private profit-making companies gives rise to considerable losses for workers, who are thereby denied part of the profits made by the contributions that they pay into their capital accumulation accounts.”

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