Is the Chilean Pension System Unconstitutional?

SANTIAGO – The Constitutional Court of Chile has accepted an appeal filed by a retired teacher who wishes to access her pension funds. She plans to pay down debt with the funds. In the meantime, a reform of the pension system presented by President Piñera is being debated.

In an interview with Interferencia, María Angélica Ojeda explained that she had worked as a math teacher since 1987. She expected to receive a monthly pension of CLP$400,000 (~US$549). Her first check, however, revealed that she would only receive CLP$185,000 (~US$254).

She had accumulated CLP$46,569,000 (~US$63,907) after 30 years of work. She felt entitled to this money, so she sent a request to the company in charge of her AFP pension to withdraw a percentage of that total to pay her bills.

The money she was currently being given every month was not even enough to cover her house payment and was significantly lower than what she earned when she worked. A member of the “No More AFP” movement, Ojeda decided to sue the company in charge of her AFP pension.

Speaking to TVN’s Muy Buenos Días, Ojeda said, “It is not even 20% of the salary I had before.” She even went as far as to say, “the AFP system violates the rights of people,” more specifically, it violates people’s property rights.

Also read:

´Pension system AFP among the biggest human rights violators in Chile´

The Pension System: “Nothing Unconstitutional”

The Court of Appeals of Antofagasta reviewed Ojeda’s case and called upon the Constitutional Court to decide whether Decree Law 3500 is applicable, and the Constitutional Court has accepted the case. 

Decree Law 3500, according to an official document from the Superintendence of Pensions, aims to “ensure that workers who have finished their working life receive a stable income, and one which bears a close relation to that received during their active life.”

Before the case was accepted, the president of the Association of AFP, Andrés Santa Cruz, spoke to El Diario de Cooperativa and expressed his view on Ojeda’s case: “If the [Constitutional Court] were to accept the appeal, the pension system would end in Chile.”

Cruz argued that there is “nothing unconstitutional” about the current pension system that is in place.

Established Under Pinochet

The AFP system in Chile is a mandatory system, run by private sector pension funds, in which “all workers must deposit a percentage of their salary or income in a personal account with a Pension Fund Administrator, or AFP, each month,” according to the government’s website.

Former President Michelle Bachelet’s government identified a number of issues with this pension system that was established by José Piñera, brother of the current president and Secretary of Labor and Pensions under Augusto Pinochet, in 1980. The most notable issue with the system was the fact that many Chileans were not able to earn enough money to pay for meaningful pensions.

Therefore, Bachelet’s government introduced a pension reform in 2008 which included the implementation of a tax-funded solidarity pension system (SPS). As a result, all citizens over the age of 65 qualify for an SPS pension, so long as they have lived in Chile for at least 20 years and do not have a private pension.

Also read:

Piñera announces reform of “8th best pension system in the world”

Reform or Abandonment?

President Piñera moved to implement his own pension reform last year. In Oct. 2018, he presented a bill and explained that the new system, “will always provide benefits more quickly to those with smaller pensions, those who have made more payments, older people, and members of the middle class, women and those who voluntarily delay retirement.”

The bill has not yet been passed and is still being debated in government. According to an article by The Economist, the vast majority of opposition deputies wish to abandon the current pension system altogether and “want to bring back a redistributive pay-as-you-go system.”

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