2024-01-16 18:35:00
President Gabriel Boric’s plan to reform the Chile’s private pension system, created in the 80s during the dictatorship of Augusto Pinochet, overcame one of his first obstacles in Congress this week.
The pension bill was approved with the support of the Government coalition in a vote held in the Labor and Social Security Commission of the Chamber of Deputies on Monday night. If the project achieves approval in Congress in its current state, it would end the private pension fund administrators (AFP), whose US$180 billion in assets under management have been the foundation of the country’s capital markets.
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The AFPs will be replaced by new private companies —and a state option— that will focus solely on investing workers’ savings. A state entity will be in charge of collecting savings and paying pensions, something that the AFPs currently do. It will also increase a guaranteed minimum pension paid by the State for all Chileans and force employers to contribute 6% of workers’ salaries to savings.
To ensure support for the bill, The Government accepted the changes proposed by the Christian Democrats and other centrist parties. I affirm that Half of the additional 6% will go to individual accounts and the rest to a collective pension system to finance retirees’ current pensions. That has been one of the most controversial issues, since the right-wing opposition parties believe that the entire 6% should go to individual accounts. They have also said that the employer contribution can stimulate greater labor informality.
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“After 14 months of processing the pension reform, today we have taken a fundamental step,” Labor Minister Jeannette Jara said after the vote.
Las Private pension administrators suffer from a bad reputation in Chile. Its elimination has for years been a key demand of many social groups, mainly on the left, particularly after the social unrest that hit the country in 2019. They are accused of paying meager amounts that leave people living below the poverty line, even when fund managers have allowed Chile to have one of the most dynamic capital markets in Latin America.
The bill will now be voted on in the House Finance Committee and then on the full House before moving to the Senate.
Translated by Paulina Steffens.
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