Raise the Solidarity Pillar to 80%, 100%, or Universal Basic Pension (PBU)? There is no single vision among experts regarding the ideal path to follow, but most tend to think that in the long term it is possible to move towards something more universal, since the fiscal conditions for it would not be in place today.
Thus, for example, the economist David Bravo states that “from the cost estimates of the options produced by Dipres according to the report made by La Tercera, the significant cost associated with a PBU is evident.”
This is why Bravo points out that “in my opinion I believe that the strategy of expanding the Solidarity Pillar must continue, going from 60% to 80% and possibly 100%, but with an increase in the Maximum Pension with Solidarity Contribution (PMAS), which is cheaper than the PBU ”.
The foregoing, considering that according to government calculations, increasing the coverage of the Solidarity Pillar from 60% to 80% would imply an incremental expense of US $ 1,219 million per year in 2033. The cost of increasing coverage from 80% to 100% of the population would be an additional US $ 647 million that same year. But the cost of moving to a PBU would be much higher: an incremental $ 6.295 million in 2033.
For the former Undersecretary of Finance, Alejandro Micco, “A PBU is not the best policy for our fiscal situation and our tremendous inequality. The country needs to provide protection to those at the bottom of the social pyramid. Universal pensions are justified in egalitarian countries. It is not our case at all ”.
For his part, the executive director of Horizontal, Sebastián Izquierdo, comments that “the government’s proposal goes in the right direction, but it is a preliminary season to which we should aspire. Unlike the current basic pension, a universal pension with defined benefit is a bold policy that would allow setting a floor, making the system simpler, more inclusive and would encourage individual savings ”.
However, Izquierdo points out that “Under current budget frameworks, it is not convenient for it to cover 100% immediately, or without an intermediate station. The reforms that Chile needs must be sustainable not only for this generation, but those to come; therefore, coverage must go hand in hand with development ”.
Meanwhile, the former Superintendent of Pensions, Alejandro Ferreiro, states that “sooner or later we will have to move towards a PBU or a basic pension close to 90% coverage. With the current pension gaps – and retirements – that is the only socially sustainable solution in the medium term. If a tax adjustment for this is required, well it will have to be. VAT is a good candidate for that, because it is a way of collecting today on present consumption to finance future consumption (it operates in a similar way to a quotation proportional to current consumption) ”.
The economist and academic from the University of Los Andes, Cecilia Cifuentes, believes that a PBU should now be established, “but with some gradualness, in order to close this issue.”
In that sense, the economist notes that the government report “shows that the PBU is much more expensive than the expansion of the Solidarity Pillar that is being proposed, but what happens is that there are issues here that are not considered. The proposal we have with Patricio Arrau from PBU contemplates that this PBU is delivered and the price is not raised by 6 pp, nor is this distribution pillar created. That is super relevant, because the distribution pillar has a very high fiscal cost, both because of the contributions that the government has to make to public employees, which costs about US $ 700 million a year, and under the regime that obviously goes up; plus the fact that the contribution is paid by the employer, which leads to companies making less profits and paying less taxes. That costs another $ 500 million a year. “
On this point, he says that precisely “there, the gap to be financed is smaller, plus all the impacts generated by the incentive to work formality and saving having a PBU, although it is difficult to make the calculations there, at least, my perception , is that it ends up being much better to move towards a PBU and not do anything else. This, in terms of the incentives, the simplicity of the system, a lot of elements. That would leave us with a pension system quite similar to the one New Zealand has today, which is simply a basic couple pension, and the rest is pure voluntary savings, but the incentives are well placed there ”.
The Arrau and Cifuentes proposal raises a new PBU to replace the current solidarity pension system. The document proposes that “this new pillar covers the entire population over 65 years of age, fulfilling a residency and age requirement, financed with general revenues of the nation.”
The annual cost is estimated at US $ 7,522 million for the first year (2022), considering a PBU equivalent to $ 177 thousand per month (UF 6 per month). This compares with the US $ 5,014 million that the Solidarity Pillar would cost in 2022 if the government’s indications are approved to increase coverage to 80% of the population, the document indicates.
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