Only a few short months ago, Chile's private account system was being widely hailed by proponents of privatizing U.S. Social Security. Newspaper columnists gushed about the high returns and flexibility Chileans enjoyed, and it was all opponents of privatization, including this organization, could do to challenge the hype. Now, while the U.S. privatization drive is on permanent hiatus, the evidence is still mounting about Chile's private pensions troubles. As the New York Times reported Tuesday, widespread dissatisfaction with the Chilean system is quickly becoming the hot button issue of that country's upcoming presidential contest.

To review: Chile's privatized pension system, instituted in 1981 under the Pinochet regime, threw out a corrupt state system of guaranteed pensions in exchange for a private account set-up. Workers must designate a private fund to receive 10 percent of their annual salary plus extra for death and disability insurance and fees. Workers must contribute for 20 years to qualify; at retirement they receive the proceeds from their account in an annuity or gradual withdrawals. In the early years, Chile's system was the toast of opponents of traditional pension systems around the world, as the individual accounts, buoyed by remarkable growth in the Chilean economy, posted impressive gross returns.

The party didn't last very long. Today, Chilean voters are complaining about a range of drawbacks:

• The Times quotes one adviser that Chileans find "saving via the pension funds is quite expensive". Various studies have found that workers forfeit up to a third of their contributions to fees and administrative costs. And the sense of being ripped off hasn't been helped by the spectacular success of the pension companies involved, who have reaped windfalls amidst shrinking competition.
  
• Furthermore, the benefit to government finances has yet materialize. Twenty-five years later, the government spends more on the pension system (for those who end up with inadequate accounts and those left over from the old system) than it does on either health or education, the Times reports. Between 1998-2037 the World Bank estimates Chilean pension spending will average 4.3 percent of GDP, far higher than supporters projected in the program's early days.
  
• Other observers point to different trend as even more worrisome: younger workers are opting out of the system. Since informal work arrangements are fairly prevalent in Chile, workers who find the system too burdensome are simply looking outside the documented workforce. That could signal big problems for retirement adequacy down the line.

In response, the presidential candidates are looking to win over the public with a return to social insurance-style reforms, such as instituting guaranteed pensions for those likely to be outside the workforce, and allowing individuals to pool their resources in order to negotiate with the pension companies.

Fortunately for Chile, the privatization roller-coaster may finally be coming to an end, as long suppressed democratic pressures force the government to reckon with a failing policy. One can't help noting the similarity: it was a similar groundswell of opposition in the U.S. that forced our own politicians to come to their senses about harebrained pension schemes not more than a year ago.

Alex Baker is web content manager at The Century Foundation.