The pension system for the Armed Forces should not be mixed with the debate on individual contributions of Chileans.

El Mostrador, Friday, April 16, 2021

It is not advisable to mix the issue of fixing pensions for Chileans, based on individual contributions, with a debate on military pensions, as they follow different and incomparable logics. In one case, we are discussing pensions, and in the other, the investment in the human capital of National Defense. If there is an intention to reform the military pension system, salaries will need to be increased to align them with public administration, pay overtime, performance bonuses, and many other additional expenses, which will surely be much more costly than the potential savings some believe can be achieved at the expense of uniformed personnel.

The Mostrador Mercados published on Monday, April 12, some comments and an excerpt of what some panelists said in a discussion organized by the FEN of the University of Talca, titled “Pension Reform: The Knots of the Debate.”

The panelists in question were Alejandra Cox, the new president of the board of the AFP Association; Alejandra Krauss, former Minister of Labor; and Paula Benavides, consultant and advisor to the Autonomous Fiscal Council. All of them are professionals and experts in civil pension matters, but none have professional experience in the career and pension systems of police or military personnel.

I am unaware of everything that was discussed in the conversation, and this opinion only refers to what was published in this medium and, therefore, to what was published by El Mostrador Mercados regarding the discussions held at that instance. What is a fact is that the headline of the article shows that, at the end of the conversation organized by the University of Talca, the main news relates to the pension system of the Armed Forces and the police.

The first thing that stands out is that the president of the AFP board refers to the issue of Armed Forces pensions, a topic one would think is not specialized material for the AFP, except for the fact that a potential end to the Armed Forces pension system would represent a significant business opportunity for the industry that Ms. Cox represents. Perhaps she made the comments in her role as an expert and not as the president of the board of the association that groups the companies managing pension savings. In that case, we would not be facing the complex conflict of interest that this could imply, and it only requires clarification from the media and the organizers of the meeting regarding the capacity in which she was invited.

The second point of interest is that the comments and excerpts from the debate focus on the issue of Armed Forces pensions, a topic that is far from being the main knot of the pension debate in the country and definitely does not solve any of the multiple problems with our pensions. It gives the impression that the conclusion of the University of Talca conversation would be that pension reform will be financed with the pensions of the Armed Forces, as I cannot find the connection between pension reform and the pensions of those who worked in the armed institutes, the police, and Gendarmerie. I say this due to the damning comment from one of the panelists, indicating that the military distribution system will collapse under its own weight.

The third and most important point is that a fundamental error is made by not understanding that the pension system of the Armed Forces cannot be analyzed in isolation from the characteristics, labor demands, and remuneration structure of the same. This is a serious mistake that many have made in the past, leading to erroneous conclusions, such as those presented and mentioned in the FEN conversation at the University of Talca. Military salaries—which include retirement—are part of the investment in defense that countries make, an investment that behaves similarly worldwide, meaning that the state assumes military retirement as part of the investment it makes in defense, particularly in this area.

The military career begins early, as it requires training and preparing, at the state’s expense, the men and women of arms and police who will serve in the Armed Forces and in law enforcement and security, a service that includes risking their lives if necessary, which has lower salaries than their equivalent counterparts in public administration, does not have set working hours, and does not allow for overtime pay, but does include frequent relocations, family sacrifices, and 24/7 availability. Additionally, the personnel levels are set by law and require an annual selection process to create space in the ranks for the generations entering service. These unique characteristics of military life need to be recognized and compensated, either during the course of the career or, at its end, with an adequate pension, as a means of retention and incentive for individuals to remain in the institutions for as long as possible.

It is a career where only the state can be the employer, as it is the only entity that holds the monopoly on the use of force in our society. A single employer sets the labor and salary conditions under which men and women must perform, without any right to claim or negotiate, as they are non-deliberative bodies. By the way, this is customary everywhere in the world for those who work in the profession of arms.

All of the above does not mean that the military career and its remuneration aspects, which include pensions, are not improvable. Currently, there is an initiative in Congress from the Executive that seeks to extend the military career, in order to make better use of the state’s investment in its human capital in the Armed Forces. This same initiative obviously brings, as a counterbalance, a reduction in the years individuals are retired and, therefore, makes spending more efficient by allocating public funds to individuals who are in active service.

Perhaps it is not appropriate to mix the issue of pension reform, a reform that makes perfect sense, with a reform of military and police pensions. It is also not appropriate to compare the amounts of Armed Forces pensions with the national average pensions. The correct approach is to compare by professional qualification segment and academic training throughout the entire working life, up to retirement. One cannot compare an engineer with several diplomas, a master’s degree, and fluency in three languages, with the average pensions. The correct comparison is between working life and retirement among equivalents in the civil and military worlds.

In conclusion, it is not advisable to mix the issue of fixing pensions for Chileans, based on individual contributions, with a debate on military pensions, as they follow different and incomparable logics. In one case, we are discussing pensions, and in the other, the investment in the human capital of National Defense. If there is an intention to reform the military pension system, salaries will need to be increased to align them with public administration, pay overtime, performance bonuses, and many other additional expenses, which will surely be much more costly than the potential savings some believe can be achieved at the expense of uniformed personnel.

Richard Kouyoumdjian
Vice President of AthenaLab