OECD warns about pension withdrawals, believes that Chile is where pensions “could be most affected”

RIO DE JANEIRO, BRAZIL – The fact that last week the Chamber of Deputies rejected the fourth withdrawal of funds from the AFPs did not prevent a new bailout and the total transfer of savings from being processed in Congress. Criticism of these measures abounds, and one of the latest came from Paris.

“Unless increased future savings compensate for these withdrawals, the consequence will be a low retirement,” warns the Organization for Economic Cooperation and Development (OECD) to countries that have authorized these bailouts to compensate for the economic hardship of the pandemic, using Chile as an example.

Read also: Check out our coverage on Chile

In a new version of its annual report, “Pensions at a Glance”, the multilateral forum emphasizes that few nations allowed exceptional withdrawals from individually funded accounts to mitigate the impacts of Covid-19. But it warns that “Chile is the country where future pensions could be most affected”.

Australia is another OECD member that allowed workers unprecedented access to their savings. In that country, withdrawals reached 1.4% of the value of 2019 assets. The OECD recalls that the figure is well below the 25% of assets reached in Chile, where roughly 35% of system participants withdrew all their savings.

Looking at voluntary schemes, the report posits that Costa Rica, France, Iceland, Portugal, Spain, and the United States lifted sanctions or extended conditions for accessing pension funds.

“Early access to savings in retirement plans should only be a measure of last resort,” the OECD reiterates. It reinforces that “there can be some flexibility, and many jurisdictions already include provisions allowing partial withdrawals in some specific exceptional circumstances.” Unemployment accompanied by prolonged and significant losses of income or terminal illness are some of the situations identified by the entity.

VULNERABLE GROUPS

The report states that a clear trend observed in the last two years has increased income protection for low or no pensions. It highlights Chile -along with Germany, Latvia, Mexico, Slovakia, and Slovenia- as the countries that have improved old-age safety nets or low increased pensions.

The OECD also points out that Chile, Indonesia, and Mexico use gender-specific tables, which, it says, reduce women’s pensions. However, it points out that their use is not permitted in the European Union.

The entity points out that older women have a higher risk of poverty than older men in all countries except Chile, “where the risks are almost the same”. And it details that in Spain, the gender difference is minimal.

Despite the small gap, the national rate – for both genders – is above the OECD average. In the countries, the average poverty rates in old age are 16.2% for women and 11.6% for men. In Chile, poverty among older adults is 17.5% and 17.6%, respectively.