Basic universal pension – La Tercera

MR. PRINCIPAL

Guillermo Larraín, in a letter dated March 30, insists on his criticism of our Universal Basic Pension (PBU) proposal. Undoubtedly, all public policy alternatives have costs and benefits, and certainly the PBU has a high fiscal cost that can only be covered if the country continues to grow. For this we need savings, investment and employment, and to collect with the least possible distortions in the formal labor market, strongly affected by the pandemic and technological change. Larraín proposes financing higher pensions with a 6% pay-as-you-go contribution, that is, with a formal labor tax equivalent to a burden of more than US $ 5,000 million, this being the most inefficient and distorting way of collecting. This form of collection punishes formality and savings, and therefore has significant costs in terms of economic development. Nothing ensures that this figure can be maintained in the future, as a result of demographics, technological changes and incentives not to contribute.

It is true that a PBU does not ensure good pensions for everyone, but it meets the objective of eliminating poverty in old age and generates the correct incentives for individual savings to exist, thus contributing to economic development. It is evident that a pension composed of a PBU plus any additional pension self-financed by contributions in individual accounts is far superior to a pay-as-you-go system, which is also unsustainable due to demographics, and therefore ends up being a fraud for future generations. Any payment greater than current pensioners must be financed with the general income of the nation. Our proposal also incorporates linking the age of the benefit to the average life expectancy. Let us measure well the social costs and benefits, including the impacts on economic growth, and we will surely conclude that the PBU and the individual capitalization is a system much superior to a PAYG system.