In an April 26 column comparing Chile's retirement program favorably with Social Security, New York Times columnist John Tierney used the example of an economist friend in Chile to argue that that country's pension system -- which includes private accounts -- provides a better return on contributions than Social Security. Tierney offered the caveat that “Chileans may someday long for a system like Social Security if the stock market crashes and takes their pensions down with it,” but said, “The relative risks of the Chilean and American systems are a question for another column.”

One would think that “the relative risks of the Chilean and American systems” would be precisely the type of topic to examine in a column about the Chilean and U.S. systems. Nonetheless, we eagerly await that follow-up column from Tierney in which he addresses the risks of the two systems. As Tierney prepares to write it, we hope he'll take a bit of advice: Read your own paper.

As the Times reported on August 16, 1998, pensioners did in fact see their benefits fall during a major downturn in the Chilean economy:

In 12 months, Chile's stock market has lost more than 25 percent in dollar terms, largely in response to faltering exports to Asia and falling copper prices tied to Japan's economic slowdown. ... Although supporters of the Chilean pension system point out that the diversified portfolios in Chile's retirement accounts have eased the losses, pensioners and workers are lining up in the offices of pension management companies with questions fraught with doubt. Simply put, privatization has proven no panacea for the insecurities people feel when thinking about retirement.

Moreover, according to a Times article from January 27, only half of the Chilean labor force actually participates in the privatized system:

For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others -- because they earned much of their income in the underground economy, are self-employed, or work only seasonally -- remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system.

That Times article also suggests that even Chileans who do contribute to the pension system are unlikely to receive benefits as great as they would have under the previous system:

“What we have is a system that is good for Chile but bad for most Chileans,” said a government official who specializes in pension issues and who spoke on condition of anonymity, fearing retaliation from corporate interests. “If people really had freedom of choice, 90 percent of them would opt to go back to the old system.”

[...]

For those remaining in the government's original pay-as-you-go system, the maximum retirement benefit is now about $1,250 a month. The National Center for Alternative Development Studies, a research institute here, calculates that to get that same amount from a private pension fund, workers would have to contribute more than $250,000 over their careers, a target that has been reached by fewer than 500 of the private system's 7 million past and present contributors.

This leaves many Chileans in a situation that has led to the coining of a phrase: “pension damage.” There is now even an Association of People With Pension Damage, 157,000 members and growing, that consists of Chileans, mostly former government employees, who find that their pensions, based on contributions to the private system, are significantly less than if they had remained in the old system.