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Camila Vallejo has been hailed as a Chilean icon for the student movement and for local politics by both critics and supporters. (Manuel Venegas/Alejandro Bonilla) 

By SANDRO MAIRATA 
Channel: Latin American Affairs

Time magazine struck a cord a week ago by naming “The Protester” – an anonymous, undistinguishable, yet familiar character embodying an assorted mix of demonstrators from the ranks of the Occupy (You Name It) movement against corporate greed, while also encompassing the freedom fighters of the Arab world, and marchers from India, Spain, Greece, and Russia – as its Person of the Year 2011.

The prestige of being selected for this honor is impressively enduring, with tons of buzz surrounding the election of Marc Zuckenberg in 2010, or the conspicuous absence of the late Steve Jobs.

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GOP Presidential nominee Herman McCain’s economic plan involves a “9-9-9 system” he loves to mention, and most of us watching the debates can only make fun food-related puns about it.  However, McCain has also mentioned more than once that he wants to reform Social Security with a model similar to Chile’s AFP system. Chile has a private national pension plan created during the dictatorship in the 80s. As a Chilean-American, when me and my family heard this for the first time, we had very mixed feelings about it. Here’s where I’ll explain how this system is not as awesome as it sounds to a GOP candidate; although a good model copied by various nations, it runs as smoothly as our health care system.

Administradoras de Fondos de Pensiones (AFP) is privately administered and regulated by for-profit corporations, with regulation laws set up by the government, in which workers contribute a set up percentage each year. It was an innovative program at the time, particularly in South America. At the time it created a financial boom, a solution to a unorganized system of pensions. Although these sweeping reforms worked well in the economy, particularly after the end of the dictatorship in the late 80s, they came with a high social cost and other problems:

• There was an old system in place before this one (PAY-GO), and the transition costs and shortage in the old pension system costs the government significantly. It reached 5% of the GDP in 2006, according to the CASEN survey. AFP contributions were much smaller, but not all workers qualified or were able to switch, so many workers continued to pay to the old system, so the government covered its shortfalls.
• Only 58% of all workers were able to contribute to these pensions. Other workers either saw it as a bad investment due to the high price and low returns, or simply did not qualify. Self-employed workers and independent contractors do not qualify for these benefits, and many people entering the workforce simply do not want to contribute after seeing the failures of the system. Meanwhile these pension companies retain between a quarter and a third of the worker’s contribution. [source]
• Inequality is created in socioeconomic levels. Over 50% of workers not being able to contribute to their pensions are poor, in the lowest income level and with very little to no education, according to a study done in the Universidad De Chile (University of Chile) in 2006. Since it is more costly to fund a better pension, only those who can afford it can retire more comfortably.
• That is - not only do you have contribute a % of your money, but also deal with managing costs, which tend to be fixed (particularly now when there is less companies). For someone from a low-income economic class this can become a burden, and with no incentives to contribute, an easy solution is to op-out. [source]

The government also helps those that do not meet pension fund requirements, but these pensions tend to be much lower and cannot compete with private pensions. The 2008 reform gave more incentives to join, included self-employed workers in the program, gave housewives a pension for their work, gave more room for the government to help meet pension goals,  and made it easier to contribute. These reforms were introduced by then-President Michelle Bachellet, which by the way, is a socialist.

Let it be noted that a huge reform like the one in 2008 was needed to help fill the gaps the private funds were creating. We don’t need a system that will make socio-economic gaps. We need to reform what we have now.