The Chilean government, in an agreement with opposition senators, has managed to introduce changes to the individual capitalization pension system. This change, while maintaining the essence of the current system, opens the door to establishing a social solidarity pension insurance financed by the State, an unprecedented measure due to the historical resistance to modifying the neoliberal model entrenched in Chile.
The reform becomes urgent in light of the meager pensions offered by pension fund administrators (AFP), with an average monthly amount of 160 dollars, below the 230 dollars guaranteed by the State. Discussions about this modification have been stalled for more than ten years, primarily due to a lack of political consensus and opposition from the AFP, which manage around 250 billion dollars and dominate the capital market, earning substantial profits.
The adjustment proposed by Gabriel Boric's government, while maintaining the presence of the AFP despite promises to eliminate them, seeks to introduce competition by allowing the entry of new players and bidding for the client portfolio every two years. This could result in a reduction in the fees charged by the AFP and adjustments to these fees based on the performance of the funds.
The central change of the proposal is the introduction of an employer contribution equivalent to 7% of the salary, added to the 10% already contributed by the worker. The total of 17% is complemented by an additional 1.5% from the Disability and Survival Insurance (SIS), also funded by employers. Of this 17%, the 8.5% contributed by the employer is divided into 4.5% for individual capitalization accounts, 2.5% to the SIS, and the remaining 1.5% as a "Deferred Contribution with Protected Profitability," which will act as a loan to the State to finance a social insurance that will equalize pensions for men and women.
The Ministry of Labor highlighted that after 43 years, employers will finally contribute to the pension system, bringing Chile in line with international standards where both employers and workers contribute. The pact, while not perfect, represents a significant advance in improving the pension system of the country.
The total contribution from workers will be 2.9% of GDP, with 2.4% corresponding to employers and 2.5% financed by the State. The agreement, still pending approval in the Senate and under discussion in the Chamber of Deputies since March, seeks to address the shortcomings of the current system and improve the retirement conditions for Chileans.
