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Retirement Funds Early Access During a Pandemic: Impact on Financial Markets

Presented at the IPRA Special Session on Pensions and COVID-19: The Global Experience

Retirement Funds Early Access During a Pandemic: Impact on Financial Markets

Speaker: Félix Villatoro (Universidad Adolfo Ibáñez and Netspar)

Abstract: This paper aims to study the financial markets effects related early pension fund withdrawals. The data we analyze is interesting because it is focused on Chile, a country with one of the longest- spanning Defined Contribution pension system. By the end of 2019 AUM were approximately 80% of GDP. Moreover, since the system was created, in 1981, this is the first time that funds are being withdrawn for non-pension purposes. Indeed, amidst the COVID-19 pandemic, Chile's legislative power promoted a special law in order to allow retirements of up to 10% of individual's pension savings accounts. This law was discussed and approved rapidly, between June 24th and July 24th. Our initial estimates show that the announcements related to the special legislation process produced significant and heterogeneous CAARs in local equity. Such returns were negatively affected by pension fund manager selling decisions. Moreover, the results show that this process has tended to appreciate the Chilean peso relative to the US dollar. We also show that the Central Bank has played a key role as a liquidity provider. While this has ensured stability in local financial markets, it poses future challenges in terms of the Central Bank’s role in possible future withdrawals and the rolling-out of the exceptional measures taken so far.

About the speaker: Félix has a PhD in Economics from the Pontificia Universidad Católica De Chile. He has served worked as a researcher for the Chilean Pension and Bank supervisors. Currently, Félix is a professor at the Business School of Adolfo Ibáñez University. His research interests include: household finance, pension systems and public policy topics applied to pension markets.