Learning from the Chilean Experience: The Determinants of Pension Switching

Edited by Olivia S. Mitchell, Petra E. Todd and David Bravo

in Overcoming the Saving Slump

Published by University of Chicago Press

Published in print March 2009 | ISBN: 9780226497099
Published online February 2013 | e-ISBN: 9780226497105 | DOI:
Learning from the Chilean Experience: The Determinants of Pension Switching

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This chapter investigates consumer knowledge about the pension system to determine whether financial illiteracy might account for the persistence of market frictions in the pension marketplace. It shows that only 69 percent of participants in the Chilean system indicate that they receive an annual statement summarizing past contributions and projecting future benefit amounts, while every participant is sent a statement. The chapter demonstrates that participant pension switching patterns did change after the reform of the pension market in Chile. The Chilean system did not regulate fund-to-fund switching. The average number of switches declined after 1997 by 0.12 per annum. Older people tend to have more accumulated in their pension funds, so switching would generally have greater implications for them in terms of potential cost savings. Furthermore, the change in regulatory rules on the marketing of Administradoras de fondos de Pensiones substantially suppresses the overall number of participant switches.

Keywords: pension system; financial illiteracy; pension market; Chilean system; pension switching; Chile; cost savings

Chapter.  8686 words.  Illustrated.

Subjects: Public Economics

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