The positioning of natural resource-based sovereign pension fund: analysis of Chile’s private pension reform

FANG Lianquan 1 LI Qingyi2

(1.National Institute of Social Development, Chinese Academy of Social Sciences)
(2. Graduate School of Chinese Academy of Social Sciences)

【Abstract】Chile was the first country in the world that has introduced private pension system in the 1980s. Since the 21st century, the Chile model has undergone two rounds of reforms. The establishment of the sovereign pension fund in 2006 was an important step to improve the multi-pillar pension system under the transition of the fiscal governance policies. This article illustrates Chile’s pension system reforms since 2006 and analyzes the strategic role of the sovereign pension fund as well as its investment policy. At last, the article points out some lessons from the natural resource-based sovereign pension fund in the Chile model.

【Keywords】 sovereign pension funds; governance structure; Chile; private pension;

【DOI】

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(Translated by LI Mengling)

    Footnote

    [1]. [1] Zheng, B. 2018 China Pension Report (中国养老金发展报告2018). Beijing: Economy & Management Publishing House, 3–4 (2018). [^Back]

    [2]. [1] Fang, L.智利养老金制度研究. Beijing: China Social Sciences Press, 161–182 (2015). [^Back]

    [3]. [2] Social Security Administration, Social Security Programs throughout the World: The Americas 2009, 2010, p. 82. [^Back]

    [4]. [1] See “Chile Presidential Advisory Commission on the Pension System” (Comisión Asesora Presidencial sobre el Sistema de Pensiones), Resumen Ejectivo, Santiago, Chile, 2015, http://www.comision-pensiones.cl/Documentos/GetResumen [2019-01-10]. [^Back]

    [5]. [1] GOL. CL, “President of Chile Presents Main Points of Pension Reform Bill”, October 28, 2018, https://www.gob.cl/en/news/president-chile-presents-main-points-pension-reform-bill/ [2019-01-10]. [^Back]

    [6]. [2] ECLAC, “Demographic Trends in Latin America and the Caribbean”, July 14-15, 2009, https://www.cepal.org/celade/noticias/documentosdetrabajo/6/48786/Demographic_Trends_in_LAC_PAULO_SAAD_ED_12_7_09.pdf [2019-01-10]. [^Back]

    [7]. [1] José De Gregorio, “Copper Price and Chilean Economy”, March 26, 2007, https://www.bcentral.cl/documents/145129/609415/bcch_presentac_163579_es.pdf/9a5369e7-7ee4-67e9-6b6f-bf3ed7eea079 [2019-01-10]. [^Back]

    [8]. [2] “President Bachelet Promulgates Fiscal Responsibility Law”, September 22, 2006, http://www.chileangovernment.gov.cl/ [2019-01-10]. [^Back]

    [9]. [3] Molybdenum is a by-product of copper production. Chile is the world’s largest producer of molybdenum, accounting for a third of world production. In recent years, international price of molybdenum has risen sharply, and the export revenue of molybdenum plays a significant role in the increase of Chile’s public finance. [^Back]

    [10]. [1] “President Bachelet promulgates Fiscal Responsibility Law”, September22, 2006, http://www.chileangovernment.gov.cl/index.php?option=com_content&task=blogcategory&id=40&Itemid99 [2019-01-10]. [^Back]

    [11]. [2] UF is the monetary unit of Chile and is known as Unidad de Fomento, which was established on January 20, 1967 and adjusted periodically by the Central Bank of Chile according to the change of the consumer price index, so as to adjust the monetary value change due to the inflation. Till July, 2018, 1 UF is equivalent to about USD 27.1. On this basis, 900 million UF is equivalent to about USD 24.4 billion. According to the forecast of the Central Bank of Chile, the fund can meet social pension payment in the next 25 years. [^Back]

    [12]. [3] Before the reform in 2008, the government provided subsidies to those who had contributed to their personal accounts for 20 years under the private pension system, but whose pension payment was lower than the social guaranteed minimum pension standard, so that their pension benefits reached the minimum social pension level. [^Back]

    [13]. [4] Chilean Ministry of Finance, “Annual Report of Sovereign Wealth Fund 2017”, April 30, 2018, http://www.hacienda.cl/english/sovereign-wealth-funds/annual-report.html [2019-02-10]. [^Back]

    [14]. [1] Chilean Ministry of Finance, “Annual Report of Sovereign Wealth Fund 2017”, April 30, 2018, http://www.hacienda.cl/english/sovereign-wealth-funds/annual-report.html [2019-02-10]. [^Back]

    [15]. [1] Chilean Ministry of Finance, “Annual Report of Sovereign Wealth Fund 2017”, April 30, 2018, http://www.hacienda.cl/english/sovereign-wealth-funds/annual-report.html [2019-02-10]. [^Back]

    [16]. [1] Chilean Ministry of Finance, “Annual Report of Sovereign Wealth Fund 2017”, April 30, 2018, http://www.hacienda.cl/english/sovereign-wealth-funds/annual-report.html[2019-02-10]. [^Back]

    [17]. [1] Chilean Ministry of Finance, “Pension Reserve Fund-Asset Allocation Study”, April 30, 2018, http://www.hacienda.gov.cl/english/sovereign-wealth-funds/relevant-studies.html [2019-02-10]. [^Back]

    [18]. [2] Chilean Ministry of Finance, “Annual Report of Sovereign Wealth Fund 2017”, April 30, 2018, http://www.hacienda.cl/english/sovereign-wealth-funds/annual-report.html [2019-02-10]. [^Back]

    [19]. [1] See Informe de Pasivos Contingentes compiled annually by the Chilean Directorate of Budget, http://www.dipres.gob.cl/598/w3-channel.html [2019-01-11]. [^Back]

    [20]. [1]The International Forum of Sovereign Wealth Funds (IFSWF), “Sovereign Wealth Funds Generally Accepted Principles and Practices (GAPP) —Santiago Principles”, April 30, 2018, http://www.ifswf.org/sites/default/files/santiagoprinciples_0_0.pdf [2019-01-11]. [^Back]

    [21]. [2] Sarah E. Stone and Edwin M. Truman, “Uneven Progress on Sovereign Wealth Fund Transparency and Accountability”, April 30, 2018, https://piie.com/publications/policy-briefs/uneven-progress-sovereign-wealth-fund-transparency-and-accountability [2019-01-11]. [^Back]

This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 03, Pages 46-59+5

May 2019

Downloads:2

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Article Outline

Abstract

  • 1 Reform situation of Chile’s pension system in the past 10 years
  • 2 Development of Chile’s pension reserve fund in the past ten years
  • 3 Investment management policy of the Chile’s PRF
  • 4 Functional positioning of resource-based sovereign pension fund: experience from Chile
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