Last updated: 20:59 / Thursday, 1 August 2013
Special Senate Committee

Chile Approves a Proposal to Create an Alternative Pension System

Chile Approves a Proposal to Create an Alternative Pension System

Amongst the agreements reached by the Special Committee formed by the Chilean Senate to study reforms to the Pension Funds system are: to generate a system in parallel to the existing system administered by the AFPs, to ensure tripartite contribution and to consider how to allocate the regional factor in the calculation.

In the last meeting, which was held on Monday, Senators Eugenio Tuma, Alejandro Navarro, Pedro Muñoz Aburto, Jose Garcia Ruminot and Carlos Kuschel analyzed the first five points of the document prepared by this body, which was released in early July. This text will be presented to the Executive in order for them to consign the Commission’s proposals, when reforming the current system, the Chilean Senate reported.

Within the issues approved at the meeting, Senator Tuma, president of this parliamentary group, highlighted the fact that the changes make it compulsory for the employer, whether public or private, to contribute for the total remuneration. “No more non-taxable allowances. This irregular situation has been partly responsible for the current damage to social security contributions,” he explained.

According to the parliamentarian, another issue which will be highly important in a future reform is related to the regulation of fees charged. He commented on the urgency of establishing transparency for these costs, ensuring that while the AFP claim to be applying 2% for this concept, in practice the figure rises to approximately 20%.

In turn, Senator Navarro elaborated on the voting of the points that were addressed. He said there is a marked difference between the government and opposition senators, since the former are committed to improve the existing system, while the second are committed to its elimination altogether.

The congressman said that the next government should consider these proposals, calling on all current presidential candidates from different sectors to pronounce themselves on this issue. In his opinion, the candidate Michelle Bachelet will be responsible for eliminating profiteering in the area of pensions.

Text Adopted: 

  • To provide Chile with a public and supportive universal pension system, which enshrines the right of workers to withdraw from the current fund managers, choose the management system they wish to use for their pension funds, end the compulsory contribution to AFP and establish a system of nonprofit pension fund managers with the creation of a supporting fund differnet than individual contribution pension savings.
  •  Restore the principle of Social Security as a right according to international standards of the ILO in Chile.
  • Incorporate the employers’ share to the social security contribution and gradually increase the contribution dues, achieving a tripartite contribution to the pension system with the participation of workers, employers and the State.
  • Encourage collective pension savings plans established during the legislation. For these plans, create incentives, such as the possibility of withdrawal of these funds in times of illness, education and purchase of the first home.
  • Fees should be in line with the results. To adjust the fee amount, the taxable income should be taken into account.

Other items approved by the Commission, the drafting of which remained pending were:

  • Design a pension system which takes regional factors into consideration.
  • Ensure that all types of payments made by all types of employers are taxable.
  • Consider working conditions, positively discriminating when taking heavy work into consideration.

The committee will continue reviewing twenty points in a forthcoming meeting. The debate will begin by resolving the role of workers in managing their pension funds and damaged pension records.

On July 8th, the 22 points that the Senators of this parliamentary body agreed on after nine months of work, were announced. During that time, the body received the various players related with this matter, and even held a seminar on the same issues.