Chile's Problem

President Bush likes Chile's privatized state pension system:

Among the admirers of the privatized system here is Mr. Bush, who on a visit in November called Chile "a great example" for other countries. On other occasions, he has suggested that the United States could "take some lessons from Chile, particularly when it comes to how to run our pension plans."

But really, what is there to like? The first generation of workers who depend on the private system are getting ready to retire, and many of them are about to fall into poverty. There are lots of reasons why the program has failed, but here's the bottom line:

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.

"They come to us in desperation," said Yasmir Fariña, the group's president, "because those who stayed in the government system are often retiring with monthly pensions twice as large as everyone else's."

The case of Chile is yet another example of Bush's bad habit of ignoring the real-world effects of his pet theories — and yet another reason why we cannot trust this administration with any "reform" of Social Security.