SANTIAGO – One of the hottest topics in Chilean politics in recent weeks has been the withdrawal of pension funds by Chileans to cover losses during the economic crisis. Today, Chile’s lower house votes on a proposal that would allow Chileans to withdraw a certain percentage of their pension funds. The proposal faces strong opposition from the government, which claims taking out pension funds will only weaken the financial situation of Chileans.
A proposal up for vote in Chile’s lower house of Congress would allow many Chileans to withdraw up to 10 percent of their funds, from a minimum of USD$1,200 up to a maximum of USD$5,400. However, people with less than USD$1,200 in their pension funds would be able to withdraw all their funds. The bill would also create a compensation fund, with employers and the State contributing to a partial or full reimbursement of the withdrawn funds.
Chileans have an on average USD$14,300 in their pension funds. Half of the Chileans, however, have less than USD$5,000 in their pension funds.
The private pension system (AFP) in Chile is one of the most controversial pension systems in the world and one of the driving forces behind the social protests of late 2019. The system functions on contributions, with Chileans obliged to pay 10 percent of their income to a fund which is managed by a pension manager.
These pension managers use the resources to invest in stock, and much of the criticism of the system revolves around the high risk to participants due to bad AFP investment decisions over which they have practically no control.
Another factor that has people worried at the moment is that an economic crash from the Covid-19 pandemic could wipe out their pensions, not to mention that many were also left without sufficient income due to the pandemic-related quarantines and closures.
A Mission Near Impossible
The Constitutional Commission of Congress reviewed the proposal on Monday and voted in favor of it, although all government commission members voted against the initiative (Chile’s opposition holds a majority in the Chilean lower house). When the lower house votes on the proposal today, the opposition will need at least 60 percent of the votes, as the proposal is drafted as a constitutional reform.
The large majority-vote needed for constitutional reforms is one of the reasons Chileans protested for a new Constitution in late 2019: they claim constitutional reforms are almost impossible with the 60-percent-rule, considering the heavily polarized political landscape in the country.
The opposition has 70 members in the lower house, and an additional 15 independent house members, and they would need 93 votes, which seems a near impossible task considering the heavy opposition from government sectors. Nevertheless, with internal divisions in the government coalition Chile Vamos, political scientists say the outcome of the vote might turn out positive for the opposition.
The Piñera administration states that the present support plan for the Chilean middle class does more to protect the financial well-being of Chileans, and that the withdrawal of pension funds is only a temporary solution which could cause more financial dependence and poverty in the future.
It is not the first time since the coronavirus outbreak that the Chilean opposition presented a bill regarding the AFP system. In April, Communist Party-member Camila Vallejo presented one that would have completely nationalized the AFPs, ostensibly to give Chileans more financial security and to decrease the inequality in pensions.
Editor-In-Chief Boris van der Spek is the founder of Chile Today.