•Let pension fund management companies manage more than one variable-income fund. (At present, and since the spring of 2000, AFPs have been able to manage a second fund made up completely of fixed-income instruments. Consumer demand for that type of fund has been to date negligible.) One simple way to do this would be to allow those companies to offer a short menu of funds that range from very low risk to high risk. That could reduce administrative costs if workers were allowed to invest in more than one fund within the same company. This adjustment would also allow workers to make prudent changes to the risk profile of their portfolios as they get older. For instance, they could invest all the mandatory savings in a low-risk fund and any voluntary savings in a riskier fund. Or they could invest in higher risk funds in their early working years and then transfer their savings to a more conservative fund as they approached retirement.
•As Latin American markets become more integrated, expand consumer sovereignty by allowing workers to choose among the systems in Latin America that have been privatized, which would put an immediate (and very effective) check on excessive regulations.
•Give workers the option of personally managing their accounts. Thanks to the emergence of the World Wide Web as an investment tool, individuals could gain greater control over their retirement savings if they decided to administer their accounts themselves.
•Reduce the moral hazard created by the government safety net by linking the minimum pension to the number of years (or months) workers contribute.
•Adjust contribution rates in such a way that workers have to contribute only that percentage of their income that will allow them to purchase an annuity equal to the minimum pension. In other words, if a high-income worker can obtain an annuity equal to the minimum pension by contributing only 1 percent of his income, he should be able to do so and decide for himself how to allocate the rest of his income between present and future consumption.
Those adjustments would be consistent with the spirit of the reform, which has been to relax regulations as the system has matured and as the fund managers have gained experience. All the ingredients for the system’s success—individual choice, clearly defined property rights in contributions, and private administration of accounts—have been present since 1981. If Chilean authorities address some of the remaining shortcomings with boldness, then we should expect Chile’s private pension system to be even more successful in its adulthood than it has been during its infancy and adolescence. And unlike a pay-as-you-go system, a fully funded individual capitalization system can anticipate fewer problems as it matures.