NCPA - National Center for Policy Analysis


November 21, 2008

Argentina's Senate approved on Thursday a state takeover of $23 billion in private pension funds, a move that analysts say could protect retirees from short-term stock market chaos but also limit their long-term retirement income.  Critics have called it a money grab by a government that faces huge debt payments and upcoming congressional elections. 

"We have no doubt that this violates the right to private property.  There has been a clear confiscation here that not only affects us, but society and the world," said opposition Sen. Ernesto Sanz.

The move cuts off Argentines' access to investments that could bring bigger profits, instead providing them with a set amount of money every year from the government.  Analysts say the plan is a mixed bag that will protect retirees in the short term but could hurt them in the long run:

  • Chile provides a good example of just how risky investing in the stock market can be: The country's riskiest funds -- which in good times can bring the greatest reward -- have lost 40 percent of their value this year.
  • But the economy eventually will reboot, and it is during a recovery that Argentines may feel the pinch of a defined monthly payout from the government, said Augusto Iglesias, an economist and senior partner at the pension-reform consultancy PrimAmerica SA in Santiago, Chile.

"Nationalizing the system will make retirement riskier in Argentina," Olivia Mitchell, director of the Pension Research Council at the Wharton School of Business in Philadelphia, wrote in an e-mail response to questions from the Associated Press.

It also punishes risk-taking for those retirees who could get a better return on investment in private accounts, agreed Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis.

When Argentine workers were allowed to switch between private and public pension funds last year, only 20 percent opted for the government's plan.

Source: Jeannette Neumann, "Argentine Senate approves pension plan takeover," Associated Press, November 20, 2008.


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