This paper presents a brief history of pension reform in Chile, the reasons behind the introduction of individual privately managed accounts in 1981, and the adjustments introduced in 2006-2007. The main conclusions are that the system is sound, but the reinforcement of the social protection to low-income-low-contribution workers was a necessary step, given the problems of the formal labour market. This adjustment was also feasible because the transition costs of the 1981 reform are entering the decreasing phase. We emphasise the importance of economic growth for the effective performance of the pension system, reversing one of the traditional arguments for pension reform. Finally, we explore elements that must be taken into account when designing this type of pension reform. © 2009 Palgrave Macmillan 1478-5315.