Private Pension Systems Built on Precarious Foundations: A Cohort Study of Labor-Force Trajectories in Chile

Abstract

The success of private pension systems to provide old-age security is mainly a function of continuous individual pension contributions linked to formal employment. Using a rich longitudinal dataset from Chile and employing sequence analysis, this study examines the pension contribution histories and formal employment pathways of a cohort of individuals who began their working lives simultaneously to the introduction of the Chilean private pension system in the early 1980s, which pioneered private-oriented pension reforms worldwide. Results show that more than half of the individuals from this cohort developed labor-force trajectories inconsistent with continuous pension contributions and formal employment, which particularly affects women and lower educated people. We conclude that policy and decision makers focused on aging topics should be aware of the increasing diversity and precariousness of labor-force trajectories when evaluating the performance and sustainability of both private and public pension regimes.

The success of private pension systems to provide old-age security is mainly a function of continuous individual pension contributions linked to formal employment. Using a rich longitudinal dataset from Chile and employing sequence analysis, this study examines the pension contribution histories and formal employment pathways of a cohort of individuals who began their working lives simultaneously to the introduction of the Chilean private pension system in the early 1980s, which pioneered private-oriented pension reforms worldwide. Results show that more than half of the individuals from this cohort developed labor-force trajectories inconsistent with continuous pension contributions and formal employment, which particularly affects women and lower educated people. We conclude that policy and decision makers focused on aging topics should be aware of the increasing diversity and precariousness of labor-force trajectories when evaluating the performance and sustainability of both private and public pension regimes.