On Wednesday, Chile's Congress approved a reform to the country's contentious private pension system in Santiago, paving the way for President Gabriel Boric to sign the bill. The reform, which garnered 110 votes in favor and 38 against, entails increased employer contributions, a higher guaranteed minimum pension, and changes to the private Pension Fund Administrators (AFP) system in Chile.
This reform was a significant pledge during Boric's campaign, capitalizing on a surge of left-wing support following widespread demonstrations against inequality. Originating in the early 1980s under the Augusto Pinochet regime, Chile's current private pension system is criticized for providing inadequate pensions despite significant profits recorded by AFPs.
The new bill, forged in collaboration with the center-right opposition, incrementally raises employer contributions to pensions to a combined total of 8.5% over the coming years. This reform seeks to establish a social security system that enhances pensions and addresses disparities, notably gender gaps, within the system.
Moreover, the reform divides the existing AFPs into distinct administrative and investment entities while allowing new pension fund managers, inclusive of international entities, to enter the market. As of December 2024, Chile's pension system, as estimated by JP Morgan, managed $186.4 billion in savings and experienced a net monthly inflow of $320 million.
During his address to Congress, Finance Minister Mario Marcel underscored the reform's fiscal responsibility, sustainability, and periodic review mechanisms. While acknowledging potential job losses due to heightened labor expenses resulting from increased employer contributions, the government projected that the augmented savings would spur economic growth. Marcel stated, With this increased growth, we're going to generate more jobs that will largely compensate for the negative impact that increased labor costs will have.