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Pension Funds Workshop The Pension System in Chile Claudia Maisto Statistics Division Macroeconomics Statistics Area Institutional National Accounts Department.

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Presentation on theme: "Pension Funds Workshop The Pension System in Chile Claudia Maisto Statistics Division Macroeconomics Statistics Area Institutional National Accounts Department."— Presentation transcript:

1 Pension Funds Workshop The Pension System in Chile Claudia Maisto Statistics Division Macroeconomics Statistics Area Institutional National Accounts Department

2 2 Outline 1.Framework 2.Main characteristics of the pension system. 3.Pension system in the Chilean National Accounts Defined contribution Pay as you go SNA Recommendations.

3 1. Framework

4 4 The pension system in Chile is supported by three pillar. Chilean Multi-pillar Pension System Pension System Contributive pillar Solidarity pillar Voluntary pillar

5 5 There are three important facts throughout the pension system The creation of pension funds (DC) The adoption of multi-funds scheme Pension Reform

6 6 In December 2012, the pension funds represented 61,1% of the GDP. Figure 1. Contributors as a percentage of working population (December 2012) Source: INE, Pension Superintendence. The contributors to the Pension funds account for 63,3% of the working population.

7 7 The pension funds have diversified their investment flows depending on the economic cycle. Figure 2. Investment of pension funds by assets Source: Central Bank of Chile.

8 2. Main characteristics of the pension system

9 9 When we talk about the contributive pillar, we are talking about the pension fund mainly. The main characteristics of the scheme are: It is a defined-contribution scheme. It is compulsory for all employed workers. Working contributions are saved in individual accounts (10% of salary). Pension fund administration institutions (AFPs) are responsible for managing the funds, with separate assets. Workers are free to choose their administrator and type of funds. Insurance contract to protect workers in case of disability or death(monthly payments). Pension funds constitute households wealth.

10 10 There are two modes of pensions for retirement: Programmed withdrawals and Immediate Life Annuity.

11 3. Pension system in the Chilean National Accounts

12 12 According to the recommendations of the 1993 SNA: The pension scheme in Chile is comparable to a private social security scheme, based on special funds, which are managed by autonomous pension fund managers... Social Security Transactions

13 13 Pension Funds in the Chilean National Accounts: Method and source. The pension funds are regarded as a Conceptual Agents Financial Intermediary Integrated approach The transactions and balance sheets are compiles in a single process. Pension funds integrated accounts are compiles based on Financial statements These reports allow to obtain the current and financial account and the balance sheets.

14 14 Pension Funds in the Chilean National Accounts: Current accounts. Pension Funds UsesResources Property income earned D41,D42 Property income allocated to holders of insurance policies and pension funds (D44: D41+D42) Households Uses Resources Property income earned (Financial investment) D41 and D42 Financial Institutions Uses Resources Property income earned D41, D42 Balance=0 A. Allocation of primary income account:

15 15 Pension Funds in the Chilean National Accounts: Current accounts. Pension Funds UsesResources Social contributions D61 Social benefits 62 Households UsesResources B. Secondary distribution of income account: Social benefits D62 Social contributions D61 DI Assuming the pension scheme in Chile is comparable to a private social security scheme, we are representing the effect of this transaction in the households disposable income.

16 16 Pension Funds in the Chilean National Accounts: Current accounts. Pension Funds UsesResources A djustment for the Change in Net Equity of Households in Pension Funds (D8) Households UsesResources C. Use of income account: Saving In order to not affect households savings, we record the item Adjustment for the Change in Net Equity of Households in Pension Funds. As a result, in the case of pension funds, the saving and the Net lending(+)/Net borrowing(-) are equal to zero. A djustment for the Change in Net Equity of Households in Pension Funds (D8)

17 17 Pension Funds in the Chilean National Accounts: Balance sheet and financial account. D. The Balance sheet of pension funds: Financial Account Opening Balance Sheet for financial assets and liabilities The other changes Closing Balance Sheet for financial assets and liabilities Pension Funds Changes in assetsChanges in liabilities Net equity of households in pension funds reserves Financial Investment In the case of financial accounts of pension funds, there is an equality between changes in assets and in liability, so the Net lending(+)/Net borrowing(-) is equal to zero.

18 18 Pay as you go System and fiscal commitments. Contributive pillar (It is funded by The State) Transition generation remains in previous PAYG system (phasing out). People who belong armed forces. The payments to the workers who opted-out to the new scheme. Fiscal Commitments related with the solidarity pensions. Solidarity pillar (It is funded by The State)

19 19 Those transactions are recorded in the secondary distribution of income accounts. Central goverments Uses Resources Social contributions D61 Social Benefits D62 Households A. Secondary distribution of income account: Uses Resources Social Contributions D61 Social Benefits D62

20 20 Concerning the assets and liabilities of the Central government related with the pension system. Liabilities: The debt that the State keeps with workers -who chose the new scheme- is imputed in the liability of Central Government. Assets: In the context of solidarity pillar, the pension reserve fund was created for ensuring the payments of solidarity pension. The assets in the portfolio are recorded in the balance sheet and in the financial account of the General government.

21 SNA recommendations

22 22 Currently, the national accounts of Chile for pension funds complies almost fully with the recommendations presented in the 2008 SNA. For the rest of the recommendations, they could be considered in 2013 benchmark compilation (expected publication 2016). According to our pension system and based of the descriptions in paragraph (2008 SNA), the Chilean scheme would be classified as a Employment- related pension schemes other than social security and as a defined contribution, as well SNA Recommendations

23 23 Main classification differences are related to: Classification of supplementary contributions. Bonds Indexation and its treatment in financial flows and property income calculation. This treatment is currently under evaluation SNA Recommendations Concerning the supplementary table: Under a DC scheme the pension entitlements are part of the national accounts. In the case of the pension entitlements of the old scheme, this would be included in this table, to the extent that the public sector publishes the information.

24 Pension Funds Workshop The Pension System in Chile Claudia Maisto Statistics Division Macroeconomics Statistics Area Institutional National Accounts Department


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