Chile's pension-fund system is admired and revered worldwide. It is the model reformers from other countries always turn to. But the system is not without blemishes. Fierce competition between fund managers has led to high-pressure sales methods and finally an industry shake-out. The gains for account holders of lower fees could be short-lived as consolidation gets under way.
Battling for survival, fund managers have recently cut an average of 0.24% off fees on individual accounts bringing them down to 2.76%. The four big managers, with accounts ranging from 400,000 to close on a million, are comfortable with the cut in fee income. They already have the economies of scale that allow them to run what is a high-volume, low-value collection business and make profits. Provida, the biggest with almost a million customers, made a 15% return on its operating costs last year. Cuprum, specializing in high-income savers, made 31%.
But at the other end of the scale there are five small funds with fewer than 100,000 accounts. All made losses last year. Augusto Iglesias, a private consultant, is among the analysts who think that, with that kind of arithmetic, by year-end the number of funds, known as AFPs, will be down from the current 12 to six or seven.