Strong Outcomes for Chile’s DC Scheme | Chief Investment Officer

(October 1, 2013) – Chile’s nation-wide and privately-run defined contribution (DC) scheme has been posting some robust results, according to a study.

Male workers who contributed 10% of their paychecks over a 40-year career replaced an average 87% of their salary in monthly retirement income. For women, however, that figure was 58%.

On average, the study showed Chileans replaced 71% of their ten highest salaried years with post-retirement payouts.

Dictuc, a consultancy affiliated with the Catholic University of Chile, performed the research, taking into account data from 28,000 households. It was commissioned by the country’s Administradora de Fondos de Pensiones (Pension Fund Administrators), private institutions responsible for handling DC assets.

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As with Australia, retirement contributions are mandatory in Chile.

Chile’s system came eighth in the world in Mercer Australia’s latest annual global pension index. It beat out the United States, France, Germany, Singapore, Poland, and Brazil with a rating of C+.

Denmark achieved the only A.

According to Mercer’s report, Chile’s retirement scheme has some good features, but should raise its mandatory minimum contribution level. Furthermore, the study recommended “introducing a requirement that part of the retirement benefit must be taken as an income stream.”

This would, of course, capitalize on the Chilean system’s proven strength at providing income—for half the population, at least.

(October 1, 2013) — International retailer Walmart is one of four companies to be dumped from Swedish pension portfolios following years of engagement to try and improve governance.

A note from four of the country’s state pension funds said these investors—worth a combined $140 billion—said they would divest their holdings in Walmart, mining firm Freeport McMoRan, and potash producers Incitec Pivot, and Potash Corp.

The funds’ combined Ethical Council had been engaging with these companies on a number of issues over recent years. “In spite of a strong commitment to this process, the Ethical Council has been unable to achieve its objectives,” the note said. “It has therefore chosen to terminate the dialogue and issued a recommendation to each fund to exclude the companies’ shares from their investment portfolios. All four funds have elected to follow the recommendation.”

Engagement is the Ethical Council’s primary tool for encouraging companies to act responsibly, said Christina Kusoffsky Hillesöy, chairman of the Ethical Council. She explained: “Exclusion from the investment portfolio is a last resort when other avenues have not worked. This is therefore a setback for us in so far as we have been unable to secure lasting improvements despite several years of active engagement. We do not believe further interaction with these companies will be fruitful and have therefore recommended that the AP funds exclude them from their investment universe.”

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Kusoffsky Hillesöy said the Ethical Council engages with around 200 companies every year in a bid to make a difference. As long-term, responsible and active investors, the AP funds seek to drive positive change in environmental and social governance at companies worldwide.

Walmart was red-flagged due to its US business being linked to systematic abuses of workers’ rights, in contravention of the ILO core convention on working rights. The company also denies employees their right to form and join trade unions.

Despite meeting with Walmart and discussing these issues, the council concluded that “Walmart continues to fall short of its dialogue objectives”.

Freeport was dumped due to environmental concerns around one of the company’s bases in Indonesia and its continual disposal of waste into nearby watercourses.

“Freeport’s chief executive officer and chairman have informed the Ethical Council that the company reserves the right to release waste into rivers,” the note said. “The Ethical Council’s has therefore concluded that further dialogue is likely to be ineffectual and that there remains a continued risk of further treaty violations due to the company’s reluctance to exclude the possibility of deploying its controversial waste processing practices in future projects.”

The two potash companies were excluded due to their purchase of “phosphate from a Moroccan supplier that mines its product in Western Sahara. Western Sahara has been under Moroccan occupation since 1975 and is on the United Nations’ list of non-self-governing territories that should be decolonised.”

The council has engaged with the companies since 2010, urging them to find alternative suppliers and stop other actions that violate international humanitarian law.

“The Ethical Council concludes that further dialogue with Potash and Incitec Pivot would be to no avail as neither company has indicated an intention to cease procurement of phosphate from Western Sahara in the near future or been able to demonstrate that the extractive process accords with the interests and wishes of the Western Saharan people.”