ABSTRACT
Chile's 1980 pension reform is the first to create a funded pension system with private provision. The main virtue of such a system is the fact that it insulates benefits from the political process and the state of public finances. Chile's pension system was unified and redefined on a pay-as-you-go basis, and health insurance was separated from the pension system itself. From 1980, the reform faced systematic challenges from various groups: sectors that had profited under the old system, social security "experts" from various universities, pension institution managers, trade unions and politicians that opposed the military government and even prominent civilians that backed the government. The transition from an unfunded system to a fully funded system has important fiscal and macroeconomic implications. The chapter argues that the shift to a fully funded system must have had a positive effect on both savings and investment and on economic growth.
