Chile's pension system is often trumpeted by advocates of privatization of Social Security in the United States as an example of how well privatization works.
"A brave and largely successful reform program," judges David Harris, a research associate with Watson Wyatt Worldwide, Bethesda, Md, in a lecture for The Heritage Foundation.
The Chile system, launched in 1982, has been a rough blueprint for social security privatization plans in Peru, Argentina, Colombia, Uruguay, and Mexico.
It's a two-tier system.
The first is a minimum, guaranteed pension paid for from government revenues. It's worth the higher of 75 percent of the poverty level or 25 percent of a worker's average pay over the 10 years prior to retirement.
The second tier requires workers to set aside 10 percent of their wages in an individual pension plan. They can put in as much as 20 percent.
These funds are managed by some 20 private AFPs (pension fund administration companies). Workers select their AFP.
If the individual's second-tier plan doesn't generate equivalent income to that specified by the first tier, the government promises to make up the difference.
One positive element has been Chile's rapid economic growth - some 7 percent a year, with stock prices up an average 30 percent a year since 1987.
But in the past 12 months, stock prices fell 29 percent, prompting a government official to urge senior citizens to delay their retirement until the stock market recovers. Otherwise, the government faces a big bill from its promise to offset pension shortfalls.
A common criticism of the plan is its high administrative costs. The AFPs charge commissions up to 17 percent.
Another criticism is "excessive or ineffective regulation," as Mr. Harris puts it.
Regulators require the AFPs to put 70 percent of their money in bonds. So they have benefited only partially in the stock-market boom.