Raising the Contribution Rate

It Is Not Who Pays That Matters, but Where It Goes

Abstract

The Government recently announced a series of proposals to modify the current pension system. Each of them deserves—and is in fact generating—a broad public debate about its potential virtues and flaws. One of the main measures proposed is a gradual increase in the contribution rate of five percentage points, to be borne exclusively by the employer and earmarked for a solidarity savings fund with additional contributions from the State. The justification for this measure rests on the fact that, comparatively—and the presidential advisory commission on the pension system itself emphasizes this—Chile has one of the lowest contribution rates for old-age pensions among OECD countries, and the entirety of it falls on the worker. Continue reading...