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Longevidad y Pensiones: una Propuesta de Seguro para la Cuarta Edad

Author

Listed:
  • Guillermo Larrain
  • Simon Ballesteros
  • Sebastián Garci

Abstract

one of the principal shortcomings of the Chilean pension system is the low level of pensions. In this article, we present a proposal to reformulate the system that divides the retirement period in two periods, the third and fourth age. The entry door towards the fourth age is endogenous on life expectancy. We argue each period should be financed con different instruments: savings first and insurance later. Unlike most pension systems in which the savings and insurance logic overlap, in the proposed system they appear sequentially. The saving pillars maintain the same current structure with the difference that the depletion phase lasts only until the person reaches its retirement age’s life expectancy. Afterwards, longevity insurance will finance pensions. Affiliated persons receive a pension financed with a premium on the labor income of active workers. This system not only has the potential to increase pensions directly – due to the higher contribution rate (contribution plus the premium) and smaller time of coverage - but also has the potential to better manage longevity risk that increasingly affects all of social security schemes. We analyze three institutional alternatives to provide this insurance: pure pay-as-you-go system, a segregated fund and an insurance company. This last option appears to be the most suitable. This proposal allows in the short term increasing current pensions and the future pensioners on average of 24% with an additional contribution or premium estimated between a 2% and 4% depending on the institutional structure. Finally, we analyze the possible distributive effects and discuss alternatives to face them.

Suggested Citation

  • Guillermo Larrain & Simon Ballesteros & Sebastián Garci, 2017. "Longevidad y Pensiones: una Propuesta de Seguro para la Cuarta Edad," Working Papers wp441, University of Chile, Department of Economics.
    • Handle: RePEc:udc:wpaper:wp441
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    References listed on IDEAS

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