The actual figure for Chile is more like 19%. It is also the combination of investment fees, commissions, and, above all, transaction costs.
The turnover of investments in Chile is enormous---many times a year---which chews up any possible investment returns.
The fees, as a % of average national income is around 3%. For that amount one could have a small but quite decent---well---national defined benefit pension plan.
A few other things:
The stock market just crashed in Chile---50%. This makes the people who were about to retire, unable to.
I notice that one major US company there for the spoils of the privatized social security system, was Mellon Bank. They just pulled out citing the inability to make money anymore.
Good decision.
Lastly, the Chilean system also has a voluntary aspect to it. Naturally, the ones who needed it the most, opted out---a good portion of the indigenous indian people---the ones who comprise a good portion of the one-third who live in shanty towns.
The Chilean system has long been touted by such moderate, non-partison Washington think tanks as the Cato Institute, as the model for us and the rest of the world.
Some model. Some non-partisonship. They use our tax money, no less.
The Cato Institute is the stalking horse of the extreme right of the Republican party. It was founded by recalcitrant right wingers following Watergate---people who believed Nixon was innocent. They are also the Trojan Horse of the retail sector of the financial service industry, which contributes heavily to them. They have been pushing privatization of Social Security since they were founded in 1977.
Jose Pinera', the former Chief Labor Minsiter under the dictator and murderer, Pinochet, the one responsible for Chile's privatization, has been on Cato's payroll for a very long time.
He promotes the Chilean system as the answer to our ills. He recently did a talk in Philadelphia, calling the crash in the stock market, "a slight downturn---to be expected from time to time."
He is also a huge apologist for General Pinochet---saying in the Society of Actuaries forum (in a direct response to me) that the General was innocent.
An online friend immediately posted the statement---if he is so inncocent why did he murder my roomate in college, and close friend?
Numerous other messages questioning Mr Pinera's claims as to Pinochet's innocence were also subsequently posted.
One major contributor to the Cato Institute is the Sarah Scaiffe Foundation. This is one of three major Foundations set up by the infamous billionaire, and inheritor of a Mellon fortune, Richard Mellon Scaiffe---all used to promote right-wing causes.
Mr Scaiffe, by the way, provided more than a million bucks to find dirt on Bill Clinton in Arkansas ('The Arkansas Project')--some it finding its way to help fund the now widely discredited American Spectator. When you get off the plane at the Little Rock airport, one of the first things you see, is the huge 50 foot high billboard saying: "If you have had sex with Bill Clinton, call 1-800-xxx-xxxx." A million bucks goes a longer way in Arkansas than in many other places. There are many trailer parks.
See how things are related in this wonderful world of ours?
What is the old saying---you shall be known by the company you keep. Motives count---always.
The Privatizers have had their say for a long time now. Now we are going to have ours--about their phony and misleading financial comparisons.
Stay tuned for the fun.
But do not under any cirumstance believe everything is hunky dory with the current system---cause it isn't.
But you do not throw out the baby with the bath water. And you do not adopt draconian solutions either.
Social Security is very fixable---by adding to it, not subtracting. No benefits should ever be changed on a pension system---ever---unless you first have the right numbers on tne cost. We dont currently on Social Security.
And the cost of fixing it in the short term is probably smaller than we think---but will return 2-3 dollars for every dollar put into it---provided we advance fund it and invest the money the way all other defined benefit pension systems do it.
The cost of the current system is at least double and may be triple what it should be, had these things been done long ago. It still can cost that, eventually---but only if we break the impasse.
A starting point is to understand something very basic---like what 'cost' means in the pension world---and what it doesnt mean. (Hint: Cash outflow for a retirement system in one fiscal year is NOT cost. It wasn't yesterday, isn't today, and wont be tomorrow, ever.)
I will spend a lot of time on this point later on. It lies at the center of mass confusion on any contructive debate over Social Security---that, and the fundamental differences between defined benefit pensions and DC plans---mirror opposites in almost every way.
I will try to keep it simple---but will be happy to get into it at any depth anyone cares to.
I truly believe in what Albert Einstein once said: Everything in this world should be made as simple as possible---but not too simple."
I will try to keep it as simple as possible---but not too simple. It is a difficult subject for most people, and has as many layers as that phyllo pastry I had yesterday. But the basics are not that tough to grasp.
Continued later...(My plane trip back home was a total disaster...misrouted twice and delayed for 4 days, no less. Last time I fly Eastwind!)
