Having shot into the spotlight after winning the Florida Republican primary, Herman Cain is now on center stage with Mitt Romney as the frontrunners to be the 2012 Republican presidential candidate. His thoughts on Social Security are taking shape, and Cain is holding up Chile as the model for an alternative to our system here in the United States.
One problem, though, is that many Chileans don’t like their system. Chile switched from a system like ours 30 years ago to one where workers have to contribute 10 percent of their paychecks to private pension plans. They have five investment funds to pick from when investing their money, with the options ranging from safe bonds to risky stocks. The investment accounts belong to each person, so it passes to his or her heirs upon death.
Chileans complain about the fees that they have to pay – as high as 15 percent of the money that they pay into the system goes towards investment fund commissions and transactional fees. Additionally, Chileans still retire in not-so-good shape. The average retirement payout is 36 percent of the average working wage. Here in America, that figure is 28 percent. Chileans also have to deal with the fluctuations of the stock market. Their retirement account plan began in 1981. The 2008 economic recession wiped out 60 percent of the gains since the plan’s inception. 2009 recouped much of those gains, but that is little solace for Chileans who retired in 2008. Depending on the state of the stock market, Chileans have to time their retirement well lest they risk retirement with little to no income.
Today, Chile’s Social Security alternative is looking more and more like Social Security, as the Chilean government has made changes to lessen the plan’s volatility. In fact, two-thirds of Chileans receiving a pension get some form of support from the country’s federal government. What are your thoughts on the impact of switching Social Security over to a system like that in place in Chile?