San Benito de Palermo

The Superintendence calculates two indicators of the yield obtained by the resources held by workers in different Pension Funds and publicizes them by various means.100

The first indicator is the variation in the value of Pension Fund shares, which reflects the yield of the Fund’s investments in the period under consideration. The second indicator is the yield of the mandatory individual capitalization account, which includes both the yield on investments and

the fees paid by contributors to the AFPs, and aims to inform the public on the System’s net yield and costs. In both cases, the published yields are real, that is, over and above the variation in the UF.

In addition, it must be considered that the differences in the investment portfolios of different types of Pension Funds have an impact not only on the yield, but also on their volatility. One way to analyze the volatility of the different types of Funds over time is to calculate the variation in the share values for each type of Fund, in order to reflect which ones have greater or lesser yield variability as a result of changes in the value of their investment portfolios. In this way, when observing a specific period of time, a more volatile type of Fund will present greater volatility in terms of yield.101

Yield on the Share

This yield, as measured each year, is the percentage of variation in share value on the last day of a certain month,102 compared to its value on the last day of the same month during the previous year.103

The Type C Fund is the only Fund that has been in existence since the creation of the System. Over the June 1981-June 2009 period, it had an average annual yield of 9% in real terms. The average yield of the Type E Fund, from its creation in May 2000 until June 2009, has been 5%. In the case of the types of Funds introduced by the Multifund Law, Type A, Type B and Type D Funds had yields of 6.99%, 5.59% and 4.51%, respectively, for the September 2002–June 2009 period.104

The average yield for each type of Fund (since each one was created) is shown below:

TABLE VI.10

AVERAGE ANNUAL REAL YIELD OF PENSION FUNDS

Type A Fund Sept. 02 – June 09 Type B Fund Sept. 02 – June 09 Type C Fund June 81 – June 09 Type D Fund Sept. 02 – June 09 Type E Fund May 00 – June 09 Average Yield 6.99% 5.59% 9.08% 4.51% 5.16% 101

As of August 2006, along with the normal information published by the Superintendence of Pensions on its website, there is also a “Pension Panorama” newsletter with information on the yield and volatility of each type of Pension Fund.

102 _{Pension Funds are expressed in a measurement unit called a “share.” This value increases or decreases depending on the}

market value of the investments made by the Fund.

103

Until December 2002, the annual yield per share was calculated as the percentage of variation in the average value of the share in one month, in comparison to the average monthly value of the share in the same month during the previous year. For purposes of the calculations included in this section, the historical annual yields were recalculated using the new method, which has been in effect since January 2003 and is still in use.

104

In regards to the effect of investment regulations on Pension Fund yield, see Berstein y Chumacera. Documento de Trabajo No. 3: “Cuantificación de los Costos de los Límites de Inversión para los Fondos de Pensiones Chilenos”. Superintendencia de Pensiones, Abril 2005.

The evolution of yields by type of Fund is shown in the following graph:

GRAPH VI.13

ANNUAL REAL YIELD OF PENSION FUND SHARES (Deflated by UF105)

RENTABILIDAD REAL ANAUL DE LOS FONDOS DE PENSIONES

-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 1981 (2) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Jun/ 2009

Type A Fund Type B Fund Type C Fund Type D Fund Type E Fund

Fund A Ave. Fund B Ave. Fund C Ave. Fund D Ave. Fund E Ave.

Yield on the Account

The yield indicator is an Internal Rate of Return (IRR) and is calculated by solving the following equation: Where: 0 = r) + (1 RI ) TCA + (0,1 SI ) r + (1 SFC i i n 1 = i n * 0

SFC106 = Final balance of the CCI. SI = Initial balance of the CCI.

TCAi = Additional contribution rate for each month of the period of calculation, as a

percentage.

ß = Benefit received by members as a result of their insurance against the risk of disability and death.

RI = Taxable income, which for purposes of the calculation is assumed to be constant in real terms throughout the period.

r = Real monthly yield of the CCI, to be determined in the calculation. n = Period of calculation of the indicator.

i = Each month of the period.

As may be seen from the above equation, the resulting IRR depends on both the income of the contributor and on his/her initial balance; in other words, there is an account yield for each member of the System. In order to maintain the simplicity of this indicator, the information which is sent every four months to members contains the net yields and expenses obtained by members whose balances and taxable wages correspond to the average values observed in each AFP.

Yield Volatility

The yield volatility of a Pension Fund corresponds to the standard deviation of real daily yields during the period being measured. For the period stretching from the implementation of Multifunds (September 2002) until June 2009, it is possible to observe that volatility and yield for the different types of Funds decreases to the extent that Pension Funds have lower levels of investment in fixed income. Thus, Type A Funds have a volatility and yield of 6.99% and 11.77%, respectively, while Type E Funds have a volatility and yield of 3.40% and 2.04%, respectively. This situation may also be observed for the 2003, 2004 and 2005 periods.

GRAPH VI.14

VOLATILITY – YIELD PROFILE BY TYPE OF PENSION FUND

(September 2002 – June 2009)

106

The following table shows the yields and volatility of different types of Pension Funds in different periods:

TABLE VI.11

VOLATILITY AND YIELD BY TYPE OF PENSION FUND

Period Type A Fund Most Risky Type B Fund Risky Type C Fund Intermediate Type D Fund Conservative Type E Fund Most Conservative

Yield Volatility Yield Volatility Yield Volatility Yield Volatility Yield Volatility

June 1981 to June 2009 - - - - 9.08% 3.71% - - - - Sept. 2002 to June 2009 6.99% 11.77% 5.59% 8.35% 4.99% 5.51% 4.51% 3.27% 3.40% 2.04% July 2008 to June 2009 -22.21% 22.41% -14.14% 15.67% -6.62% 9.20% -1.14% 4.69% 4.50% 2.25% Jan. 2009 to June 2009 21.93% 10.40% 17.62% 7.47% 12.57% 4.41% 9.10% 2.45% 5.93% 1.87% June 2009 0.46% 3.96% 0.89% 2.93% 1.12% 1.90% 1.29% 1.03% 1.57% 0.53%

(1) This calculation considers all days during this period.

1.6 Cost of the System for Members