Latin America and the Caribbean
This project suggests that studying the successful experiences of inclusion in the
Chilean pension system and comparing the experiences of failure from the perspective
of the actors themselves can obtain knowledge that will allow reforms to make effective
solution to the inclusion independent of the poorest and most vulnerable to the mechanisms
of saving for old age.
Aldo Madariaga, Nicolás Pérez, Rodrigo Figueroa
About the Researcher(s)
Aldo Madariaga is a sociologist at the University of Chile, where he has taught economic sociology.
He is currently obtaining a diploma (PGDip) in Public policy analysis at the same university.
He has carried several funded research oriented towards public policy and pension
systems. At the present he is a research assistant in the Social Development Division
at the Economic Commission for Latin America and the Caribbean (ECLAC).
Nicolás Pérez has a degree in sociology from the University of Chile and a diploma (PGDip) in advanced
social data analysis by the Pontifical Catholic University of Chile. He is currently
working as Director of Studies in a local private consultant agency where he has participated in research related to the field of finance, telecommunications and small business.
Rodrigo Figueroa has a degree in sociology from the University of Chile (1998) and a master in Labor
Economy and Work Relations from the Pontifical Catholic University in Peru. He has
developed an academic and research experience in the fields of economic development,
small business and rural economy, poverty, middle classes and the performance of labor
institutions. He received a doctoral fellowship from the Fulbright Commission, and
is currently a doctorate student at the University of Connecticut.
Synopsis of Research Results
Pension systems constitute a social protection mechanism whose objective is to smooth
the decrease of consumption in the old age. Likewise other forms of saving, it distributes
consumption along the life cycle, specifically, they take resources from the active
part of the working life to that in which people cease to receive a salary.
|Photo: pension fund slip, different administrators
With the pioneering experience of Chile in the 1980s a new type of pension systems
started to diffuse throughout the world, based on individual retirement accounts administered
by private companies who were in charge of investing the workers' contributions in
financial markets. These systems assume that the workers can -and are willing to-
make rational choices with respect to different parameters of the system (the company
that will administer their account, the level of contributions, the target of the
investments, etc). They also incorporate a moral dimension associated with the individualization
of the responsibility for social protection, thus a bad performance of the system
is processed as result of the bad choices individuals make.
Surprisingly, the evaluations and studies made have left almost unexplored the relationship
between individual decisions and the system's performance. Our study investigated
it more profoundly, assuming that decisions are culturally and socially embedded.
In this sense, it tried to trace the process by which people frame a certain domain
in order to make it less uncertain and more calculable to be able to make complex
decisions. The study consisted in a qualitative research conducted in low-income workers
in Santiago, Chile. The choice of the population under study comprised both a concern
with respect to the situation of vulnerability of these workers, and also an effort
to study decision-making processes in a context where the assumptions of the neoclassical
rational actor tend to be absent.
The study describes the way low-income workers perceive the effectiveness of different
social protection mechanisms and the actions they engage in to administer and integrate
them, stressing the way these people manage different options in the context of certain
objective and subjective constraints. The relationship they develop with the pension
system can be understood as a social experience, i.e. a series of perceptions, actions
and behaviours, intentioned but underdetermined, and heterogeneous in their orientation,
by which people assign meanings and are able to integrate the different social protection
mechanisms as part of a comprehensive social process.
What we call "experiences of pension management" constitute a synthesis of the historical
relations low-income workers establish with the pension system and the rest of the
social protection mechanisms throughout their lives. Different actions, decisions
and omissions are made according to the way people perceive their possibilities of
effectively using and managing them.
Low-income workers develop diverse ways of managing the different social protection
mechanisms -including the pension system- and use them to generate income for their
old age. These modalities depend heavily on the level of current and/or future perceived
need and are shaped by certain objective conditions such as the work trajectories,
the family structures, and the level of knowledge. They also build parameters of evaluation
and calculation, and combine them with patterns of action they import from other domains
in which they have utilized them. For example taking the "average" choice when confronted
with complex decisions, or using income-generating mechanisms that have been successful
for contexts different than old age. Although this entails a loss of effectiveness
in the strict sense of what the pension system requires as rational choices, it provides
coherence and efficacy in the context of the specific social environment in which
low-income workers operate.
The workers who show a relatively stable history of contributions to the pension fund
perceive that they will have a better pension, and thus, tend to rely more on this
mechanism, complementing it with sporadic independent work, plus a vigilant administration
of the pension fund. On the contrary, those who expect worse results based on their
work trajectories, have less room to rely on the pension system as their main social
protection mechanism. They have been less vigilant in the past, so when they find
out about events that affect their pension funds -i.e. steep downturns of the stock
exchange or global financial crises that are communicated through the TV or newspapers-
they react with a greater degree of mistrust. The latter can become a trigger for
punitive actions -e.g. punish the administrator by changing to another company- or
even contrary ones -e.g. stop contributing. The loss of confidence with the pension
system manifests in its rejection as a social protection mechanism and the feeling
of being cheated.
In relation to the family, those who expect a lesser degree of need tend to see a
reduced familiar component in their old age, viewing it only as a complement or a
mechanism they would use only in case of emergency. On the contrary, with higher levels
of perceived necessity the familiar mechanism is more present, especially when the
family structure and relations permit it.
The degree of necessity also generates differences in the extent work is considered
a social protection mechanism for the old age. For those who have lower levels of
perceived necessity work is only complementary to the AFP pension, and it is also
a better designed strategy in terms of the activity they plan to develop and the way
of managing it. Conversely, with higher degrees of perceived necessity people are
more open to manage different social protection mechanisms at the same time, meaning
that the management of work is also more diffuse and unspecified.
A higher degree of necessity is also highly related to the fact that the prevision
of the future tends to decay vis á vis the current necessities and the income generation strategies are mostly focused on
present consumption, thus provoking actions that can be contrary to the management
of the old age.