Chile Official Says There’s Deal on Some Parts of Pension Reform
Chile Labor Minister Jeannette Jara said the government reached a deal with the opposition on some points for a long-awaited pension reform that would boost savings underpinning the nation’s capital markets.
(Bloomberg) -- Chile Labor Minister Jeannette Jara said the government reached a deal with the opposition on some points for a long-awaited pension reform that would boost savings underpinning the nation’s capital markets.
The administration on Wednesday presented the Senate with amendments to its flagship proposal to raise retirement payments. The pre-negotiated points stipulate total employer contributions would be 8.5% of workers’ salaries. Specifically, 4.5% would go directly to each individual’s savings accounts.
Meanwhile, 1.5% would temporarily go toward increasing payouts for retirees who need extra money now, with those funds later being returned to current workers when they end their careers. Part of the remaining percentage would go to women, who are disadvantaged under the existing system.
“We have good news for Chile,” Jara told members of the Senate’s labor committee. After months of talks, “we have found points of agreement that allow us to advance the reform.”
The reform was a key election pledge of President Gabriel Boric, which explains why the government is working full speed to get it approved before the end of his term in March 2026 and why it has conceded so much to the opposition. Under the original proposal, the majority of funds from the employer levy were earmarked to help the poor, rather than going to individual savings accounts.
Private pension fund managers, known as AFPs, would also continue to exist in the reformed system despite harsh criticism from left-wing legislators.
The Senate’s labor committee on Wednesday agreed to debate on the reform and will now move to crucial, article-by-article votes. Senators have an agreement to put the legislation up for a floor vote this month, but it still must go back to the lower house before becoming law.
There are plenty of hurdles ahead. Lawmakers will be on congressional recess in February, and any possible disagreements on the text between senators and lower house deputies could further delay the reform’s approval.
More broadly, political attention will slowly start to shift to presidential and congressional elections that will take place later this year.
The pensions funds are Chile’s largest institutional investors, managing about $190 billion. An additional 6% of savings could increase the stock of assets of pension funds invested in the domestic market from 27% of GDP to about 33.3% in 2030 and close to 61% by 2050, according to a report by the Finance Ministry from November 2022. That would boost economic growth by 1.1% a year in the long term, the report said.
Chile’s pension system, created in 1981, has become a reference point for reforms worldwide. People currently pay 10% of their wages into a personal savings account that they can only tap on retirement.
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First Published:16 Jan 2025, 01:02 AM IST
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