Chilean President Gabriel Boric Font has submitted before Congress a bill to end the pension fund administrators system created under dictator Augusto Pinochet.
The mechanism currently in force created an individual capitalization method replacing the pay-as-you-go model. Each worker is deducted 10% of his or her monthly salary to a personal account managed by one of the seven existing Pension Fund Administrators (AFPs), which make huge profits after investing these savings in the markets, which amount to about 8% of Chile's GDP.
These funds are returned to the account holders when they reach their retirement age (60 years old for women and 65 years old for men).
But AFP investments are believed to have exclusively benefited the elites. On top of that, the system only works for those who have a stable job and a high income, something unthinkable for the vast majority of Chileans. In 2008, a reform was made and a state-financed pension was created, aimed at the poorest 60% who had never contributed or who received very low pensions. The state contribution was increased in 2021 to 185,000 pesos per month (US$ 200).
The AFPs, in this reform, are finished, said Boric, who seeks to create a public fund administration agency. In a broadcast message, the head of state said that his reform was based on principles of social security with contributions from the State, employers, and workers.
There will be new private investment managers with the exclusive purpose of investing pension funds and, in addition, there will be a public alternative, which will allow promoting competition with the entry of new players, Boric said.
We thus want to leave behind an extreme system, which has not been able to meet the expectations that were placed in it and which has recognized deficiencies, he added.
In Chile, 72% of pensions are below the minimum wage and one in four retirees receives a pension that is below the poverty line, Boric insisted.
This occurs at the same time that the AFPs receive tremendous profits, even though the results and profitability of the funds are negative, he also pointed out.