Private Investment Accounts Fail Miserably in Chile

The New York Times examines Chile’s private investment accounts:

Even many middle-class workers who contributed regularly are finding that their private accounts — burdened with hidden fees that may have soaked up as much as a third of their original investment — are failing to deliver as much in benefits as they would have received if they had stayed in the old system.

Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month.

“Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me,” he said, “are retiring with pensions of almost $700 a month — good until they die. I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981.”

Update (1/27/05): Atrios says: “So, people who stayed in the government pension scheme are doing twice as well as people who went into the private scheme, largely because brokers are taking a third or so in fees.” But this misses the point — even if those fees are absent, then Mr. Sáez receives a pension of approximately $450 a month, still way short of what he needs and way short of what people in the government plan get. The problem is that the private plan did not provide as much financial security as the government plan.