Public Employee Press

Part 5 in a series on the threat to secure retirement

Chile’s Social Security failure
Privatization by bayonet

By GREGORY N. HEIRES

As governments dismantle their public pension systems worldwide, retirees who are struggling to get by with shriveled benefits have a South American military dictator to thank.

Without having to worry about democratic debate, Gen. Augusto Pinochet of Chile pioneered the global movement to privatize social security nearly 25 years ago when his military regime imposed a retirement system based on individual investment accounts.

President Bush speaks glowingly about the Chilean experience as he campaigns to turn the Social Security system in the United States into private accounts. But for Americans considering whether to replace their guaranteed, inflation-proof Social Security retirement benefits with accounts subject to the uncertainties of the stock market, the checkered record of Chile’s private accounts is a danger sign.

“The changes in Social Security there have hurt many people I know, including my parents, relatives and friends,” said Juan Fernández, president of Amalgamated Professional Employees Local 154, a native of Chile.

With personal knowledge of the harm that privatization has done to working people in Chile, Fernández is alarmed about Bush’s plan to take a lesson from Pinochet, whose government slaughtered and tortured thousands of political opponents and other innocent people.

Prison and exile
During the Socialist government of Salvador Allende, who was killed in a U.S.-supported coup led by Pinochet in 1973, Fernández was a communications worker in the Chilean Agriculture Dept. He was active in the student and labor underground until his arrest in 1975, and spent a year in prison, where he was tortured, before coming to live in exile in New York City. He now works as a Human Rights Specialist at the Commission on Human Rights.

Fernández was active with the international solidarity movement that opposed the dictatorship as it destroyed the Chilean labor movement and privatized social security and government industries. Today, he remains in touch with progressive political and labor activists who want to make social security reform a key issue in Chile’s presidential election this year.

Fernández’s father, now deceased, was a sanitation worker in the capital city of Santiago. In the 1980s, the municipal workers were forced to enroll in the privatized system after the city government dismantled its pension system.

“My father wound up with a lousier pension,” Fernández said. “His experience was similar to countless other workers who voluntarily joined or were forced to enroll in the new system.”

The new setup required employees who entered the workforce after 1981 to sign up for a private account. While other workers technically had a choice, signups soared as the military government hyped the investment schemes and private employers stopped participating in the traditional government pension plan.

Retirees remained in the old pay-as-you-go, defined-benefit plan. The police and military, Pinochet’s political base, were also allowed to stay put. “The system has failed to live up to its promises,” said Arturo Martínez, president of Chile’s largest labor federation, United Workers Central (CUT), in an e-mail interview in Spanish. The group is leading the campaign to reform the privatized system. “While workers’ money is being invested, the workers aren’t reaping the benefit. The financiers are making a lot of money,” Martínez said.

Low participation
Although 7.1 million people are enrolled, only 3.8 million are actually able to contribute to their private accounts. The low contribution rate results from the instability of jobs, the frequent need to leave the workforce to care for children, and the lack of disposable income in a country where more than half of the workers earn little in part-time or off-the-books jobs.

Because of its obligation to retirees in the old system and its guarantee to make up the difference if earnings from private accounts left workers short of the minimum pension, the government continues to spend heavily on pensions. Since the privatized system was introduced, government pension expenditures have remained at 6 percent of the national economy. Pension spending makes up more than a quarter of the government budget, about the same as health care and education combined.

Plunged into poverty
Today, workers need $20,000 in their accounts to get the minimum pension — now about $100 a month. Most individual accounts only have $5,000, according to the Santiago-based Economy of Work Program (PET).

Dagoberto Saez, a 66-year-old worker in Santiago, told the New York Times earlier this year that he expected his monthly income to drop from the $950 salary he received as a laboratory technician to $315 from his private account when he retired in March.

“Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me, are retiring with pensions of almost $700 a month until they die,” he said. “I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981.”

Originally, the Chilean government claimed that with private accounts, workers’ retirement benefits would be 70 percent of their salary. In fact, studies show they will get only 40 percent. “The earnings are insufficient to provide people with a dignified pension,” PET Director Carmen Espinoza told PEP.