Chile wealth fund advisor slams government pension fund plan
Economist and a senior advisor at Chile’s sovereign wealth fund casts doubt on the rationale behind the new government’s plans for a state competitor to the private pension funds.
|| Javiera Blanco: Minister of labor. Source:
Ministerio del Trabajo
A senior figure in Chile’s sovereign wealth fund
has called the Chilean government’s plan for a
new state-backed pension provider "a very bad idea".
The new Chilean government, which assumed office as
president on 11 March, plans to introduce a state-backed
pension provider to compete with private pension
administrators, in what could be the biggest shake-up of the
country's pension system for more than a decade.
But Arturo Cifuentes, academic director at the University of
Chile's Center of Regulation and Macrofinance Stability - and
president of the financial advisory committee of Chile's
sovereign wealth fund (with a total of $22.19 billion under
management) – said the rationale behind a new state
fund was flawed.
"I think a state-backed provider is a very bad idea," said
"Management fees are already fairly low, so I cannot see how
competition from the state provider can reduce them even more.
Pension funds returns have very little to do with the funds'
management and much more to do with the amount that someone
contributes while they are working. In fact, returns have been
President Michelle Bachelet has mandated Javiera Blanco, the
new labor minister, to introduce legislation to set up the new
provider, to compete directly with the AFPs. A committee of
national and international advisers is to advise on other
changes to the pension system.
The number of AFPs has more than halved since the 1980s.
Blanco has argued the new provider should help to reduce the
commissions that private providers receive through increased
competition while extending the system's coverage to include
She has said the Chilean pension system, when it was
established in the 1980s, initially set a target for the
percentage of a worker's pre-retirement income that is paid out
by a pension program upon retirement, at 70%. But in reality,
the ratio is lower than 40% for men and lower still for women,
"The state-backed AFP is planned to improve the role of the
state in pension provision," Blanco said recently. "The main
role of the state is to ensure that there is pension coverage
for the whole population."
The minister pointed to research showing the system is
efficient in terms of the profitability of the AFPs but wanting
in terms of the performance of the pension funds. However,
economists, including Cifuentes, have criticized the move and
say they cannot see how a state-backed provider will improve
For more on Latin America’s pensions
industry, including how the forerunner of many pensions systems
in the region – Chile – might be at risk, see
the LatinFinance Guide
to Institutional Wealth, published in the May/June