0 “THE IMPACT OF CHILE’S PENSION SYSTEM ON WORK PROPENSITIES OF MEN AND WOMEN: EVIDENCE FROM A RETROSPECTIVE DATA SET”

In 1981 Chile shifted its social security system from a defined benefit to an actuarially fair defined contribution scheme, exempted all pensioners and non-pensioners over 65 (60 for women) from the payroll tax, tightened early retirement eligibility and eliminated the implicit tax on own-pensions of widows. Old-system members remained largely subject to old-system rules. Using a retrospective data set of new and old system affiliates we ask whether work propensities increased for new-system members aged 50-70 and which rule changes had the greatest impact. We find large effects: Work probabilities were much higher among new-system affiliates, especially pensioners under 60/65 and non-pensioners over 60/65, who were exempt from the payroll tax in the new system but not the old. Aggregate work probabilities further increased as the proportion of non-pensioners rose due to tighter early pension rules, which made eligibility contingent on actuarially-determined replacement rates. The increase in work propensities is especially striking for women, particularly married women, who no longer have to give up their own pension in order to get a survivor’s benefit