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Learning from the Chilean Experience: The Determinants of Pension Switching

Learning from the Chilean Experience: The Determinants of Pension Switching

Chapter:
(p.301) Chapter Eleven Learning from the Chilean Experience: The Determinants of Pension Switching
Source:
Overcoming the Saving Slump
Author(s):
Olivia S. Mitchell, Petra E. Todd, David Bravo
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226497105.003.0012

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

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