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Poor ratings for Chile in health care and pensions' system, according to OECD

Thursday, November 28th 2013 - 20:51 UTC
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In 2011, Chile spent 1,568 dollars per capita on health, while the OECD average was 3,322 dollars In 2011, Chile spent 1,568 dollars per capita on health, while the OECD average was 3,322 dollars

Two biannual reports revealed Chile as one of the countries with the worst pension statistics and the highest citizen out-of-pocket expenditure on health among Organization for Economic Cooperation and Development (OECD) nations.

 The reports, named “Pensions at a glance” and “Health at a Glance 2013” stoked heated debate over both Chile's mandatory, privately-administered pension system and the accessibility of quality health care. The reports also found an increasing life expectancy among Chileans, despite a rising trend toward obesity and diseases such as diabetes.

The replacement rate — retirement money as a percentage of a person’s salary — in Chile is significantly lower than the average figure for countries of the OECD. The replacement rate was 52% for men and 42% for women. For example, if a male worker’s pre-retirement income is US$ 100,000, they can expect a return of US$ 52,000.

The gross replacement rate for the average Chilean earner was 41.9%. Though higher than both the United Kingdom and the United States’ figures, 32.6% and 38.3% respectively, it was still significantly lower than the OECD’s average of 54.4%.

Under the current system, workers contribute a mandatory 10% of their salary to Pension Fund Administrators (AFPs) who then give back the pension returns at the age of 65 for men and 60 for women. However, the returns depend on market fluctuations and have left many retirees disappointed with their pensions in the past.

Roberto Fuentes, Director of Studies at the Chilean Pension Fund Association (AAFP), believes that the fault in the AFP system lies not in returns, but the level of contribution.

“The recommendation of the OECD to increase replacement rates in Chile signals that there must be a higher contribution rate, as Chile has one of the lowest rates among the OECD countries and the rest of the world with 10% of the salary,” Fuentes told The Santiago Times. “The contribution rate of the OECD’s pension system averages 20% of the salary, almost double the contribution of the Chilean system.”

The OECD report contradicts AAFP figures released September, which had retired males receiving 87% of their salary, and women 58%. Ricardo Paredes, chief of the survey, explained why the figures differ.

“My study takes all the individuals that were given pensions between January and March 2012 and looks at their effective pension and what their taxable salary was over the past 10 years,” Paredes tells The Santiago Times. “The OECD’s study uses simulations and values, for example, it assumes a 3.5% interest rate. That’s how the two methods are very different. Mine doesn’t assume anything; it simply takes draws a value from what there is.”

The report also highlights the discrepancy between the age at which Chileans can legally begin claiming pensions and the age at which they retire. For women, the legal retirement age is 60, but the average age at which Chilean women retire is 70.4 years — making it the largest discrepancy among the OECD nations. For men, the age at which they can claim pensions is 65 and the average retirement age was 69.4, making it the third largest discrepancy, behind Mexico and Korea.

People in Chile, Korea and Mexico pay more for health than in any other country in the OECD. A total 4.6% of the average Chilean family’s budget is spent on health, where the average among OECD countries is 2.86%.

“[Chile’s is] an imperfect insurance system,” Health Minister Jaime Mañalich said. “The fundamental reason for this huge out-of-pocket spending is pharmaceuticals.”

The levels of expenditure have led experts to acknowledge the failure of the Chilean health system.

“When we have this kind of expenditure it shows deficiencies or the inexistence of an effective health system,” Camilo Cid, public health academic and economist at the Universidad Católica told a local radio

Expendinture on medical drugs in Chile grew rapidly by 12.1%t between 2009 and 2011. “Increased personal spending, makes us a very attractive market to the pharmaceutical industry,” Mañalich said in a press conference.

For spending on healthcare per capita, Chile moved three spaces down between 2009 and 2011, placing it in the bottom third of countries with the lowest healthcare expenditure. In 2011, Chile spent US$1,568 per capita on health, while the OECD average was US$3,322 and the country with the highest expenditure was the United States, with US$8,508.

The report also showed that life expectancy has risen. Where the average child born in Chile in 1970 has a life expectancy of 62, a child born in 2011 now has a life expectancy of 78. Though still below the OECD’s average life expectancy of 80, the improvement of life expectancy has rocketed by 16 years compared to the OECD’s average of 10 years.

However, the report showed that Chile was in the top five countries with the highest prevalence of diabetes. With 9.8% of the population between 20 and 79, Chile’s prevalence of diabetes is higher than the OECD average of 6.9%. Obesity levels are also particularly high, with 31% of the male population obese and 19% of the female population obese, placing Chile sixth highest among OECD countries.

By Benjamin Druttman - The Santiago Times

Top Comments

Disclaimer & comment rules
  • The Chilean perspective

    The solution is a 10% employer contribution fazed in over the next 10 years and a minimum 15% contribution by the employee, also the pension funds should be government guaranteed and be banned from charging fees. The fee restructuring should also take place over the 10 year employer contribution faze in period. The pension funds have no excuse not to be able to thrive given the huge amounts of money under their management. At last count it was over 165 billion Dollars. This may sound a little left wing but I'm confident it's a winner.

    Nov 29th, 2013 - 12:24 am 0
  • Think

    (1) The Chilean perspective

    You say...:
    “This may sound a little left wing but I'm confident it's a winner.”

    I say...:
    In the Chile of the seventies, one could get killed for less...
    Welcome to reality, comrade compadre...
    Hasta la victoria siempre...

    Nov 29th, 2013 - 03:49 am 0
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