Thursday, January 27, 2005

Chile Privatization Sucks

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.

One reason privatization in Chile seemed like a good idea to begin with (I mean, aside from Uncle Milton's fantasies) was that previously the pension system was being systematically looted by people in government. So, yes, if the option is George Bush looting Social Security, which he pretty much promises to do every time he claims that SS hits a problem in 2018, and private accounts, then give me private accounts. But, there are, thankfully, other options.

Consider this:

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."

A 20 year annuity. If he lives that long -- boom, broke. Nothing.