MercoPress. South Atlantic News Agency

Boric signs Chile's pension reform into law

Approving a reform to the AFP system “cost a lot,” Boric admitted

Chilean President Gabriel Boric Font Thursday signed into law the new pensions reform introducing changes to the retirement mechanism in force since Augusto Pinochet Ugarte's military dictatorship (1973-1990). The new law will become effective starting in September 2025 and be fully implemented by 2035. It provides for a mixed system with contributions from workers (10%), employers (8.5%), and a new state-backed social security component, in a move to boost pensions by 14% to 35% for 2.8 million senior citizens, thus addressing the low payouts from privately-managed Pension Fund Administrators (AFPs) currently giving about half the country's retirees about US$ 350 monthly when the minimum wage stands at US$ 500.

“The Pension Reform is the most important advance in pension matters in the last decades. This initiative creates a new contributory Social Security, improves the Universal Guaranteed Pension, establishes benefits for years of contributions and compensation for women's life expectancy,” the Chilean Government said in a statement.

“This is a collective achievement. Its approval was transversal, by a majority, and it also gives a signal to the country that Chile is moving forward by working together,” said Boric during Thursday's ceremony launching the reform. “It cost a lot. For 10 years different governments were processing different projects to try to increase pensions, but there was no agreement,” he added.

The new law also suppresses gender disparities, recognizes both paid and unpaid work, and increases competition among AFPs by allowing public bids and new entrants, reducing costs for workers. Described as the most significant pension advancement in decades, it shifts from a worker-only contribution model to one including employers, aligning Chile with global standards. This reform “will allow the biggest increase in pensions in the last decades,” Boric also pointed out.

The law was passed on Jan. 30 after over a decade of failed attempts, thanks to a rare agreement with parts of the opposition, including Chile Vamos (a center-right coalition of UDI, RN, and Evópoli).

Finance Minister Mario Marcel thanked Chile Vamos lawmakers for crossing political divides despite pressures. Chile Vamos is a center-right political coalition in Chile, founded on January 29, 2015. It consists of three main parties: the Independent Democratic Union (UDI), National Renewal (RN), and Political Evolution (Evópoli). The coalition succeeded previous center-right alliances and has played a significant role in Chilean politics, including being the ruling coalition during Sebastián Piñera's second presidency (2018–2022). Since March 2022, Chile Vamos has been part of the opposition to Boric's administration. The coalition emphasizes conservative, liberal economic, and anti-communist ideologies. “It is important to recognize those who were willing to listen,” Marcel reckoned while thanking “the deputies and senators of the Labor and Finance Committees who supported us in this process, including those from the opposition who, resisting enormous pressures, [and] were able to cross political barriers to seek agreements.”

The AFP system, introduced in 1981, was criticized for profiting administrators while delivering inadequate pensions, sparking years of public protests. The reform is a major win for Boric's leftist government as he enters his final year, fulfilling a long-standing demand for a fairer pension system.