Five Pillars for a Pension Reform in Chile

With the enactment of the law that allows the withdrawal of 10% of AFP funds, the door is open for a real reform to the current pension system. It can no longer wait. That’s why I believe it is necessary to advance in five macro areas.

To get a better pension system, the first thing to do is to strengthen the solidarity pillar, enabling recipients to age with dignity. This can work in two ways. On the one hand, increasing some specific taxes and on the other, reducing the size of the state and making it more efficient.

A second step would involve increasing pension contributions from 10% to 18% through shared contributions from worker, company, and state (for SMEs). Current savings are not enough to cover 20 or more years of decent pensions. It is simply impossible and, at the very least, higher pensions require shared efforts. Possibly part of that increase can be covered by reducing the contribution to public (Fonasa) and private (Isapre) healthcare plans, implementing a unique and universal health plan.

The third challenge is to increase the retirement age. Understanding the right of all to be able to enjoy our old age in peace, today one cannot be considered old at the age of 60 and 65. The concept of “fourth age” arose for a reason. Nor is it intended to extend the retirement age abusively, but a gradual increase of up to five years modifies the pension considerably, almost exclusively due to the size of the funds saved.

A fourth objective is to lower entry barriers to allow greater competition (including a state AFP, for example) and thereby favoring a drop in commissions and development of better services. At this point, it is also good to expand the investment portfolio to access more instruments and achieve higher returns.

And finally, the last pillar is elimination of the armed forces retirement system so that this expense of the state goes toward the solidarity pillar. It cannot be that the current military and police retirement system costs practically the same as basic pensions, with nearly 170,000 retirees in uniform receiving the same amount as over 1.2 million retirees that get the solidarity pension.

Clearly, any pension reform is extremely complex, but if we really want to advance with a system that allows us to access fair pensions, we must leave demagogy and populism aside and be serious, at the political cost that this implies.

It cannot be that in the 21st century we still have nothing worthy to offer to our parents and grandparents. If we have not already done so, at least we should not repeat the same mistake with our future generations. We should enable them to enjoy retiring.

Read more:

Opposition Seeks to Nationalize Chilean Pension System

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