The Importance of Chile's Pension Reforms

As if we hardly need reminding that Chile's controversial pension reforms were the focal point of protests at the heart of the civil unrest or "estallido social". This has been particularly incendiary in Chile with the AFP's origins dating back to the Pinochet dictatorship. 

Chile has always seemed like the Switzerland of Latin America, routinely topping regionally adjusted league tables, but obviously it was massively inequitable and the pension system bred particular resentment over time.  

On The LatinNews Podcast this week, we speak to Nicholas Barr, Professor of Public Economics at the London School of Economics and Political Science and author of numerous books and papers on the welfare state including pensions and higher education finance. 

Follow LatinNews for analysis on economic, political, and security developments in Latin America & the Caribbean.

• Twitter: @latinnewslondon
• LinkedIn: Latin American Newsletters
• Facebook: @latinnews1967

For more insightful, expert-led analysis on Latin America's political and economic landscape, read our reports for free with a 14-day trial. Get full access to our entire portfolio.

Transcript

The Importance of Chile's Pension Reforms

[00:00:00] Richard: This is The LatinNews Podcast. I am your host, The LatinNews Podcast, here in Bogota, Colombia. This week on The LatinNews Podcast, we have very special guest, Nicholas Barr, who is a professor of public economics at the London School of Economics and Political Science. He holds a PhD from the University of California at Berkeley and is the author of numerous books and papers.

[00:00:28] Richard: On the welfare state, including pensions and higher edu education finance. So it's a absolute pleasure to have someone of your standing and esteem here professor Barr to talk to us about Chile and Chilean pension reform. And I think perhaps the best way to begin is to ask how is it that you got involved in this debate surrounding pensions?

[00:00:55] Barr: Well, thank you, Richard. It's a, it's a pleasure to be here. In the early [00:01:00] 1990s, I was on leave from the London School of Economics at the World Bank, helping to reform welfare states in central and eastern Europe, right after the collapse of Communism and at a very early stage, I got into a big fight with the World Bank with people there who, in my view were overselling.

[00:01:18] Barr: The Chile pension reforms, they were arguing that what Chile had done was the single best reform and that all countries should be doing that. My response was. A reform, not the reform. And in addition, it was a reform that was very demanding administratively. Mm-hmm. In fact, I've often said to friends in Chile, and I have many good friends in Chile, that in some ways I don't think Chile did the world a favor with its 1981 reforms because Chile's a very unusual country.

[00:01:52] Barr: It passes laws, but then it enforces them. And other countries in the region thought, well, if Chile can do it, we can do it. And. A whole lot [00:02:00] of countries followed and. Chile's, one of the, arguably the only country in the region that's managed to carry that off. So that was my argument. Then I continued the argument over the years over the last 20 years, I've done it in tandem with Peter Diamond at MIT, an economics Nobel Prize winner, and the bank's view has now moved considerably.

[00:02:24] Barr: It's. Much less stridently in favor of individual accounts and you know, has a much more balanced view. So that then led to involvement in Chile. I think I've had over 15 trips to Chile, including work with the Marcel Commission that introduced the Solidarity pension. And as a member of the Bravo Commission and I, I was back in Chile three weeks ago and I never refuse an invitation to go.

[00:02:49] Richard: A fantastic place to visit. Of course. It, it obviously you, when you are looking at these reforms and you say from the 1980s or 1981, we are looking at [00:03:00] Pinochet-era in Chile. So this is definitely different to what we are seeing today with borich. I mean, so you know, polar opposites indeed, but perhaps we could put it into context of why.

[00:03:12] Richard: Chile is important in this world of, of pensions. You, you, you mentioned the way they reform, you mentioned where Latin America looks at Chile as an example. But what is the situation in these surrounding countries then? If they look to Chile and don't follow, follow the guidelines. 

[00:03:33] Barr: Well, this is the thing.

[00:03:34] Barr: I mean, Chile first came to Global Notice because it was the first example of radical privatization of an entire national pension plan, and it was followed by Peru, Argentina, Colombia, Uruguay, Bolivia, Mexico, El Salvador, Ecuador, Costa Rica, the do Dominican, Republican, Panama in the region. And then.

[00:03:59] Barr: About 10 [00:04:00] years later in Central and Eastern Europe, in Hungary, Poland, Latvia, Bulgaria, Estonia, Lithuania, Slovakia, and Romania. So all those countries followed. But if you say, how many of those countries still have that system, the answer is. Virtually none. I mean, in the region it's probably only Chile.

[00:04:21] Barr: And to some extent Mexico in Central and Eastern Europe countries like Estonia, Latvia, Lithuania, Poland, and Romania, having gone in for a Chilean type model were then forced to retreat because they couldn't afford it. And I'm happy to explain why, but they retreated in good order. But there were.

[00:04:41] Barr: Countries that backtracked much less, well, I mean in Argentina and Hungary, the government in essence, expropriated the funds, which is a bad way to wind back if one feels one's over committed to, to individual funded accounts. 

[00:04:58] Richard: and why, [00:05:00] why doesn't, I mean, as you, you mentioned the cost of course, and or expropriation in Argentina, but.

[00:05:07] Richard: I mean, at the beginning, this must have been huge national pride for Chile, that other countries around the world were, were pursuing the same the same format. And, and then as you say, it didn't work. What, what, what is the reason for this? 

[00:05:22] Barr: Well, several reasons. First of all, there is. A high taxpayer cost of moving from in pay As you go system, the contributions of today's workers pay, the contributions of today's pensioners.

[00:05:41] Barr: In a funded system, the contributions of today's workers goes into their own individual accounts, which they can draw on when they reach retirement age. But if you've got a pay as you go system and you want to move to a funded system, then I. The contributions of workers that previously paid for the [00:06:00] pensions of pensioners now go into their individual accounts.

[00:06:03] Barr: And the question is, who pays the pensions of the pensioners? And the answer is, it has to be the taxpayer. And these are referred to as. Transition costs, which makes it sound as though they're small and don't last for a long time. And the reality is they're very large and they go on for a very long time.

[00:06:22] Barr: Chile was able to get away with it because Chile ran a consistent budget surplus, so Chile could afford those fiscal costs, other countries couldn't. So that's reason one. Reason two, administering individual funded accounts. Is it requires a lot of administrative capacity. Chile had that. A lot of other countries found that they didn't.

[00:06:45] Barr: You need not only to collect the money, you need to attribute it accurately and quickly to each worker's individual accounts. You need to accumulate their records, you need to keep them informed. All that is administrative, demanding, and as I [00:07:00] said, Chile's an unusual country because it passes laws, but it then enforces them and other countries.

[00:07:06] Barr: I mean, very often, very largely copied the Chile legislation. So it wasn't the legislation that was the problem, it was the implementation. Mm-hmm. And arguably, the biggest lesson I learned during my time at the World Bank is that strategic policy design. I. The sort of thing that academics like me do is the easy bit, the hard bit is implementation, making things work in practice both politically and technically.

[00:07:33] Barr: And Chile could do that, and the other countries mostly couldn't. 

[00:07:36] Richard: And they could do this, as you say. 'cause the the budget surplus. And I imagine this is due to the, well, the exportation of the precious metals, the copper and so on that have funded Chile for so long. And of course then, we move on, we move on.

[00:07:51] Richard: And if we think of recent years and we think of the, well, the political discontent in Chile [00:08:00] and well, it's a disappointment. It's a disappointment in the pension scheme, I'd say overall. And it, it doesn't live up to what was promised. 

[00:08:11] Barr: That's part of the problem. One source of discontent was exactly disappointment at the level of pensions, which didn't live up to the early promises.

[00:08:21] Barr: The early proponents of the system made very optimistic assumptions. Their arithmetic was fine. But they made assumptions that reality couldn't support. Mm-hmm. Part of the problem was they assumed everybody would have a full pension contribution record, so people contribute for 40 years Now, I.

[00:08:44] Barr: The Chilean pension system for people who do have a full contribu contributions record work fairly well, but a lot of people don't have a full contributions record because of informality and for other reasons. So one reason for discontent was people [00:09:00] got a lower pension than they expected. A second reason for discontent was for some people it was the origin of the system under the dictatorship.

[00:09:10] Barr: A third reason was continued high charges. It is illegal for me in Britain to give pensions advice because I'm not an accredited independent financial advisor. But what I do say to people is, look at the administrative charges of your pension fund, and if your pension fund charges you 1% of your accumulation per year to manage your account, and a lot of funds charge more over a full career.

[00:09:37] Barr: That 1% will mean that your accumulation ends up being 20% smaller just because of that 1% charge than it otherwise would be, and hence pension is 20% smaller. So administrative charges are deeply boring, but incredibly important. Administrative charges in Chile in the early days were very [00:10:00] high. The introduction of an auction mechanism in 2008 and reinforced in the recent reforms has led to lower charges, but it's still the case that a lot of AFPs are seen to be making large profits, and that causes a, a, a further reason for hostility.

[00:10:19] Barr: And then a fourth and final reason is. Gender inequity given the multiple disadvantages. Women face, I mean, they have lower pay, they have more part-time work, they have more career breaks, and that means women on average have a smaller contribution record. A smaller accumulation than men, but separately, women have an earlier pension age and.

[00:10:46] Barr: Women's pensions are priced on the fact that women on average live longer than men. Whereas in Europe and most other countries, annuity sellers are obliged to use a single life table [00:11:00] when calculating annuities. So all those reasons mean that women in Chile have had a raw deal, and all those were reasons that for different people in different ways contributed to the discontent.

[00:11:12] Richard: So this discontent, when we look at it overall, as you said, the the private pension funds or making huge profits as a result of these exorbitant administrative charges. And then of course when you look at the ideological. Issues between the dictatorships, what they have put in and what, where we are today in Chile.

[00:11:35] Richard: And of course, this is a major source of, of discontent in the country between who, you know, the how who supports the regime and who, who are against the regime. And then if we think about this piling on with. A high cost of living in Chile. It's always amazing to me so long in Latin America. The cost of [00:12:00] living in Chile, I know it's risen everywhere, but Chile is a, has always consistently been I would say, more dear than much of other of its neighbors.

[00:12:10] Richard: And then, of course this, this rise in metro fairs. Remember when everything kicked off? Where I, and people didn't understand it as well, it just, it sort of came out and we are looking at this that was you know, we're looking at serious issues taking place in Chile. I mean, these, these are tapped into an undercurrent of discontent.

[00:12:35] Richard: Perhaps you could elaborate. 

[00:12:37] Barr: Well, partly. It is the a FP system. I mean, it's amazing how wide and deep that discontent goes. I have a picture that I took of a bus shelter in the middle of the Atacama Desert and sprayed on the side was no a FP. And this is sort of in the middle of the Atacama Desert.

[00:12:58] Barr: So. It's the [00:13:00] pensions themselves, but also Chile is still an unequal society. It's true, it has become less unequal, but inequality is still there. And. For political purposes, importantly is perceived to be there. Mm-hmm. So I think that's, those are the sort of deep seated causes of discontent and like all these things, it's always a question of which small event will trigger the the, the explosion in whatever form it comes. I mean, in the case of the es, so it was the metro fairs, but you know, in other countries it's been an attempt to raise pension age or raising bread prices or things like that. Mm-hmm. 

[00:13:45] Richard: Yeah, I was thinking about sort of a, you know, unrest in Mexico for the increase in tortillas, you know, the whatever it is, the spark.

[00:13:53] Richard: That that, that then set light this, this unrest. But did things improve, for [00:14:00] example, under the presidency of Michelle Bette and we, one thinks that she would come in or she came in perhaps with a more altruistic view of these things. 

[00:14:12] Barr: In 2004, I was invited to Chile to talk at a pension seminar organized by the International Labor Organization and at at a a dinner at someone's house the night before I got talking to a young. And he said to me, what are you gonna say tomorrow? And I said, what I'm gonna say is that Chile has a system of individual accounts that works reasonably well.

[00:14:39] Barr: I said. But individual accounts only do consumption smoothing. In other words, they only help people redistribute from themselves to themselves, from their younger selves to their older selves. They only do consumption smoothing. They don't do poverty relief. So Chile doesn't really have a pension system.

[00:14:57] Barr: It only has part of a pension system [00:15:00] only. I said, I'll be more diplomatic. And he put his hand on my shoulder and said, no, no, he said, not more diplomatic. And that's where I realized that my, what I was gonna propose, namely non-contributory pensions, wasn't gonna cause a blood bath in Chile. I was actually pushing at an open door.

[00:15:19] Barr: People in Chile had worked out for themselves that a non-contributory pension of some sort was necessary. To complete the system. And my role was not to fight the fight, but merely to give some international respectability to what they'd already worked out they were gonna do. And that's why in 2008 under President Bachelor on the recommendation of the Marcel Commission, chile introduced the solidarity pension for the bottom 40% of pensioners subsequently extended to the the bottom 60%, and that was the right way to go, and it was a very solid foundation. And that was why in [00:16:00] 2022 under President Piñera and the solidarity pension was replaced by the the guaranteed universal pension, which was larger.

[00:16:08] Barr: And goes to the bottom 90%. So those were, you know, that was a very major step in the right direction. Non-contributory pensions have huge advantages in terms of bringing poverty, making poverty relief real, and in terms of improving gender balance, given that women have less good contribution records than men.

[00:16:33] Richard: Well, I mean that very positive indeed to think about the efforts made virtual. It seems to be reasonably forward thinking when it comes to this. And then of course, the elected in president Gabriel Borich you know, on the left, on the left, obviously, of the political spectrum. And we can't say that his presidency up till now has been a, a, you know, a roaring success.

[00:16:58] Richard: But he certainly has come in with the [00:17:00] desire to make changes and I. He did say, Borich has said that in 2025, the reform will trigger the largest increase in pension since the creation of the system and will benefit 2.8 million pensioners. What do you, what's your reflection on this? On, on Borich is that statements?

[00:17:24] Barr: Well, you need to look at the different elements of what is a. Fairly complex reform, but to try to unpack it, first of all, as I've said, there's a larger non-contributory pension financed from general taxation, which goes to everybody except people in the top 10% of the income distribution. And as I said, that benefits poverty relief.

[00:17:49] Barr: It improves gender balance. There's a second element in improving gender balance. Because of the new 7% employer [00:18:00] contribution, 1% will be used to make sure that a woman aged 65 will get the same monthly pension as a man aged 65 who has the same a FP accumulation, whereas in the past a. If a woman and a man are both aged 65 and have the same accumulation, the woman will get a lower monthly pension because women on average live longer.

[00:18:24] Barr: So that's two ways in which gender balance has been improved. Thirdly, and in many ways, this is the big one, the big drive in Chile was to increase pensions. Now, not. Only in the future, but now, and what the reforms bring in is an increase in pensions from December of this year for all pensioners, both those who are currently getting their pension and those.

[00:18:53] Barr: Workers who retire in and after December, and that's being financed from a new [00:19:00] 1.5% employer contribution that's gonna be paid back to workers in the form of a bond that they can add to their a FP accumulation. So it's not really undermining the A FP system, it's just bringing in a new element. To make sure that pensions rise immediately.

[00:19:19] Barr: And I should say where Chile has been unusual is the 1981 reforms had a 10% contribution all paid by the worker. There was no employer contribution. And by bringing in this new 7% employer contribution, chile's very much coming back into the mainstream of of practice in OECD countries. 

[00:19:41] Richard: Will, will employers then in in Chile, are they up in arms about this new contribution?

[00:19:48] Barr: Clearly if you ask employers how would you like to pay higher taxes, they're gonna give you the answer. The the a, I mean, the answer is at the margin it will [00:20:00] reduce profitability in the short run. It might reduce the extent to which employment increases, but remember that the increase. The increase in savings that the reforms bring about will lead to an increase in investment, which ought to be increasing the rate of economic growth in Chile.

[00:20:23] Barr: And with the rate increasing growth, there will be increased demand. So employers, businesses will find themselves in a better position. So if you see things in the round I would be very surprised if other than in the very short run, there was any bad effects on employment. 

[00:20:40] Richard: Well, I, I think that's, again, positive.

[00:20:43] Richard: Look at the long term effects. Look at the long term. Possibilities. But of course, as always, it's the informal economy that is, is a huge challenge for these, for these issues. And so, you know, we talk about that. I imagine again, the [00:21:00] ideological breaches between one side and the other in Chile has given rise to all sorts of of skepticism regarding Bo statements on this.

[00:21:12] Richard: And I, I have to ask quickly, had this, had, this has gone through Congress, it has been approved. His Okay, good. Yes, it was approved about three weeks ago. Okay, so the skepticism, what can we, what can we say, why are people doubting this? 

[00:21:29] Barr: People in general don't understand hypotheticals saying you will get a higher pension.

[00:21:36] Barr: Doesn't cut home. They haven't seen the extra money yet. And as an illustration, people who were very skeptical about the a FP system, the, that hostility declined significantly after people were allowed early access to some of their pension accumulation during covid. Mm. People are, some people have thought it's all a con, we'll never see the money.

[00:21:59] Barr: And then when they [00:22:00] actually got the money, they thought, wow, the money's actually there. So once people see something. They're much more likely to be in favor of it. And once the new pension payments come in later this year and get phased in next year, I think that will make a big difference. A second reason for skepticism is the reforms aren't particularly simple.

[00:22:20] Barr: I mean, it took me a while and some sort of very good tutorials from Professor David Bravo to, to get my head round them. The reforms aren't simple, and in a way it's not necessary for people to understand the mechanics. They just need to understand how it affects them. And the answer is it'll be larger pensions.

[00:22:40] Barr: And a third reason is that there's a reason why the reforms are complicated, because they had to. Precisely for the reason you indicate politics are polarized. So you had one group who wanted to abolish the A FP system altogether, the bus shelter in the middle of the Atacama Desert. And you had the [00:23:00] other group who said the A FP system is perfect and you shouldn't touch a tiny hair on its head.

[00:23:05] Barr: And. the reforms, the way they've been crafted by boosting non-contributory pensions and by raising pensions. Now give people who are not natural friends of the a FP system, a reason to to claim victory, but since of the 7% employer contribution, 4.5% going to workers' a FP accounts. And the one and a half percent that pays for the pension uplift immediately will over time also end up being folded into workers' a FP accounts.

[00:23:46] Barr: It represents a significant strengthening of the A FP system, which allows people who support that system. Also to claim victory. So there's good things in it for both sides of the political spectrum. As I [00:24:00] understand it, the extreme left and the extreme right voted against and the reforms were supported by the center, left and center, right.

[00:24:08] Richard: Hmm. Of course these, this makes for interesting debate and arguments in the lead in to the presidential elections. Later on this year, I believe, scheduled for 16th of November. So you can have Borich, obviously lauding what's coming up, and then of course the opposition opposition. Obviously you know, fearmongering, I would imagine fearmongering about what could happen.

[00:24:36] Richard: But it's a pity that perhaps this increase in pensions couldn't come in before December. for a political debate around the positive nature and improvement for, for pensioners? 

[00:24:51] Barr: Yes. I can't remember whether the, when the increase in the universal, I. Guaranteed universal pension comes.

[00:24:58] Barr: It may be just [00:25:00] administratively, it wasn't possible to do it quickly enough, but I, I dunno the details. 

[00:25:04] Richard: Yeah. Why, why are these reforms so complicated? You are a, a, a true global expert recognized expert in, in this topic, and you required. As you said, tutorials from a Chilean to, to get your head around them.

[00:25:23] Richard: What it does seem to be, I mean, living here and, and for how, for so long that the bureaucratic tangle created and legalese seems to be rather well, no, we know it's complex, but it seems to be the norm rather than the exception. But why, why in this case, in Chile, were they or are they so so complex?

[00:25:48] Barr: Well, pension systems are complex, but there's a distinction because if my car stops working, I take it into a garage and someone [00:26:00] knows how to find out what the problem is, take the relevant bits too. A part, put in a new part, tested, et cetera. I don't need to know that. I just need to know how to drive the car.

[00:26:13] Barr: People don't need to understand the details of how the pension system works. I mean, experts do. Legislators do, of course, but individual Chileans merely need to know what pension they're going to get or what pension they already are getting. So I don't think that complexity. I think any pension system that is so simple that it's really easy for the population to understand, probably has hidden problems because the moment I.

[00:26:43] Barr: People tend to think of policy in terms of, quote unquote typical cases, typical families, typical working careers. There is enormous diversity in the population, in lifestyles in family formation, in how things evolve over time. And [00:27:00] if you've got a very simple system, it won't, it won't. Adapt to diversity very well.

[00:27:05] Barr: So I think any pension system, any effective pension system will have its complexities, but that citizens don't need to know the full details. They just need to know how it will affect them. 

[00:27:18] Richard: Yeah. And at the end, as you said, they just want to see more, more in their accounts, more availability of of, of the, of their pension in order to, to aid them through the latter years and so on.

[00:27:31] Richard: It's security and it's a security financial on, on every level. So how do you. How do you feel that things will, okay, let's, let's speculate a little bit, not on the elections, but how do you feel that things will will proceed in Chile then? 

[00:27:52] Barr: Yes. When I was at the World Bank, I was appalled to see senior officials.

[00:27:58] Barr: Instructing [00:28:00] countries about which they knew very little how to behave. the joke became Poland Must and it, I learned a valuable lesson. It's not for me to tell Chile what to do, but if I were a Chilean, then. And I've heard Chile's talk about this, the idea of a government a FP that competes with private AFPs.

[00:28:23] Barr: I mean the Bravo Commission of which I was a member, did a survey, and one of the things they found was 72% of respondents opposed the A FP system, but 66% said that if there was a government a FP, they would move their savings across. My country, the UK offers the world many valuable lessons in how not to do things including on some aspects of pensions.

[00:28:49] Barr: But there is one aspect of pensions where we have done something really good. And these are something that's called Nest Pensions, the National Employment Savings [00:29:00] Trust in the uk. And these are very simple, cheaply administered pension systems. They are designed. Taking account of the findings of behavioral economics and they've got five elements.

[00:29:13] Barr: First of all, workers are automatically enrolled. Secondly, sorry, I'm gonna cut, cut across myself and start again. I.

[00:29:28] Richard: Automatic enrollment. 

[00:29:30] Barr: I was gonna say nest pe, nest pensions have five characteristics, but the underlying point is the following that. If a worker wants to make choices about pensions and retirement, the pension system should help them, but, and this is crucial, the pension system should work well for a worker who makes no choice.

[00:29:51] Barr: And the way Nest does that is it has five elements, automatic enrollment. A good default fund. So a [00:30:00] worker who makes no choice goes into the default fund, which is mainly in the stock market for higher returns when they're young, and automatically moves to less risky assets as the worker approaches retirement.

[00:30:15] Barr: For workers who do want to make a choice, they've got a choice of five funds, it's deliberately restricted to five. There's a higher risk fund. A lower risk fund, a an ethical fund and a Sharia fund and a pre-retirement fund. So workers can choose. And because those funds are simple, people can understand what they mean.

[00:30:39] Barr: I mean, I would've been, if I were young, I would've gone for the high risk fund. My wife, who's very risk averse, would've chosen the low risk fund. There's nothing complex about that. You can understand what's involved. So that's the choice for workers. Then the question is, what do you do about administrative costs?

[00:30:57] Barr: So the fourth element is that all record [00:31:00] keeping is centralized because there are huge economies of scale if you've got a single administrator. So that's the record Keeping. A separate element is what does Nest do with the savings of workers? And the answer there is the government doesn't make those choices.

[00:31:18] Barr: Nest outsources. Investment investment choices to private fund managers. So you've got a system that gives workers choice if they want. It doesn't force workers to make choices if they don't, which keeps administrative costs simple, and which makes sure that investment decisions, quite rightly, are kept in the private sector and.

[00:31:38] Barr: I have pointed to that, I've drawn that model to attend to people's attentions in numerous countries because we've learned so much since the 1981 reforms. Individual funded accounts can be very useful and very important given declining fertility, but what we've learned is. Giving workers a lot of [00:32:00] choice in an area that's very complex, doesn't work very well, and the multiple Nobel prizes this century for work on the economics of information and behavioral economics explains why.

[00:32:11] Barr: Paradoxically giving workers less choice is actually good design. And I think that would be a way forward that I would be very happy to see being pursued in Chile. 

[00:32:23] Richard: and so as we, as we wind this down, 'cause there's so much information in this and of course taking the example of the Nest pensions in the uk, do you think there's any possibility that Chile will move towards this kind of program?

[00:32:38] Barr: Well, there are little bits of the reform that move in that direction. At the moment, AFPs do their own administration, but there is. A bit of central government, a new bit in the reforms that can administer the bits that the government does. And they've said, if any a FP wants them [00:33:00] to do the administration, they're prepared to do it.

[00:33:03] Barr: And the reason for that is to make it easier for new, smaller AFPs to enter the market and improve comp, increased competition on the grounds that. It means a small new a FP doesn't have to pay the high setup costs of putting an administrative mechanism into place. They can simply piggyback on, on what the government is already doing.

[00:33:23] Barr: And of course, they, they'd have to pay for it, but they're paying on a flow basis like you know, renting a television set rather than buying one. So. There are small moves in that direction and, you know, there are moves that you know, personally I think are, are moves in the right direction. I mean, there is so much work being done explaining why giving people choice in complex areas doesn't work well.

[00:33:47] Barr: And the example I always use is I assume it's the same in Colombia and Chile as it is in the uk. None of us can go into the pharmacy and buy any pharmaceutical drugs. We like over [00:34:00] the counter. You know, morphine or antibiotics, we need a letter from our doctor, a prescription. And that's precisely because pharmaceutical drugs are highly technical and complex, and people, you know, allowing people free choice would work badly.

[00:34:16] Barr: And my view is that pensions, particularly individual accounts, are much more like pharmaceutical drugs than they are like smartphones. And as I've said, multiple Nobel prizes explain why. 

[00:34:28] Richard: Hmm, and then if this doesn't work out in Chile, the likelihood of further unrest a definite possibility. 

[00:34:44] Barr: I.

[00:34:44] Barr: I am not close enough to politics in Chile to, to have an informed view of that. All I can say is I profoundly hope not. I mean, I'm hoping the reforms and, and as I say, the fact that during the pandemic people were allowed some access to their a FP [00:35:00] accounts will act to stabilize things. So I mean, Chile's a wonderful country and I'm, you know, keeping my fingers tightly crossed.

[00:35:08] Richard: Well, I'd be, you know, overall I'd be definitely positive towards the moves in Chile. There do seem to be far more forward thinking in this, in this circumstance than a lot of other Latin American countries. I. A quick caveat, quick side note, we can, we can pretty much walk into the pharmacy in Colombia and get anything over the counter.

[00:35:30] Richard: Oh dear. But that's another story about health reform and what needs to happen because the pharmacists themselves will prescribe you on your symptoms that caused a lot of people. Don't have access, of course, to, to health insurance and so on. So this is you, you self-medicate. But a whole other, a whole other debate there.

[00:35:52] Richard: And I just digress on this one. I, I'd like to say thank you so much for your time and profound [00:36:00] expertise on this on this topic. It really has been quite illuminating on what seems. Like a, a dry topic pension reform, but really goes to the heart of a lot of the unrest and instability in what I guess arguably is, is in South America's most stable country I.

[00:36:23] Barr: Pensions really matter for the quality of people's lives. Well, thank you very much for the invitation. I've very much enjoyed our conversation. 

[00:36:30] Richard: Thank you. I've been talking to Nicholas Barr, the professor of Public Economics at London School of Economics and Political Science. I. Professor Barr holds a PhD from the University of California at Berkeley, and he is the author of numerous books and papers on the welfare state, including pensions and higher education finance.

[00:36:50] Richard: It has been an absolutely well riveting conversation about pension reform, of course, taking Chile as the [00:37:00] centerpiece. This is The LatinNews Podcast, after all, and I have been your host, The LatinNews Podcast here. Inta. Thank you again. 

[00:37:07] And goodbye.