Ownership Structure, Legitimacy, and Competition in the Pension Fund Industry: A Financial Perspective

Abstract

Allowing the entry of non-profit pension fund administrators (AFPs) and creating a state-owned AFP are measures aimed at increasing the legitimacy and competitiveness of the AFP industry through institutions whose ultimate purpose is not to maximize their owners' profit. Little is known, however, about the monetary benefits and costs this measure might have for members. This study analyzes the hypothetical case in which current administrators distributed part of the difference between their fee income and their operating costs, which in 2016 amounted to USD 524 million. In the base scenario, half of these resources would have made it possible to provide an annual benefit of around CLP 30,000 for the average contributor, or to increase the pension of the average retiree by close to CLP 12,000 per month. If these resources were instead invested in current contributors' funds to finance their future pensions, those pensions could rise by up to 3.5% for the youngest cohorts.