The AFP racket: miserable pensions and stratospheric profits

In the 1980s, a group of economists trained under neoliberal orthodoxy promised South America a technical marvel: if the public pension system were eliminated and every worker were required to deposit 10% of their salary into an individual account managed by the Pension Fund Administrators (AFP), the miracle of compound interest would guarantee retirement at 100% of the salary earned during working life.

Four decades later, the AFP fraud has been exposed in Chile, Peru and Colombia, with devastating human costs.

Today, more than 70% of the elderly who contributed throughout their adult lives under the private model receive pensions that do not even come close to the legal minimum wage, forcing thousands of older people to keep working in the informal sector to avoid starvation. Meanwhile, in the corporate towers of the private administrators, the owners of the business report net returns of up to 15% a year for their shareholders. A perfect model in which workers bear the risks of stock market downturns with their savings, while the extraordinary gains are divided among private executives.

What is most serious is that this scheme robs the domestic economies of our countries of their future. The more than $450 billion accumulated in Latin American pension funds is not used to build public schools or finance national power grids, but to buy stocks on Wall Street or low-yielding government bonds. We urgently need structural reform that replaces the scam of individual capitalization with public, solidarity-based and intergenerational social protection systems that restore dignity to working-class old age.