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Opposition Seeks to Nationalize Chilean Pension System

SANTIAGO – Representative Camila Vallejo presented a new bill to Congress to declare the pension funds as part of the state. This bill would be the first step to nationalizing the often-criticized AFP pension plans. Meanwhile, the government attempted to dissuade citizens from withdrawing money from their pensions during the Covid-19 crisis.

Representative Camila Vallejo of the Communist Party presented a bill to Congress that would declare the funds of the Chilean pension system (AFPs) public funds, with the goal of completely nationalizing the AFPs. Representative Vallejo took to Twitter to further explain her bill:

“I just entered a bill that will declare the AFPs a national interest. This is the 1st step in allowing these resources to be used by those who need them during this crisis. Why can’t we discuss it? In just 2019 the earnings were $350 million dollars.”

In her bill, she explicitly stated that the AFP model had failed and pointed out that the AFPs have around US$216 billion, equivalent to 80% of Chile’s GDP, and said that the money would be more useful if it was used to develop further projects that would help minimize the impact of a possible global recession. Lastly, she added, “This could help create a base for a more inclusive development growth in the counrty.”

Criticism of the AFPs

The AFP system has been criticized for years, with some Chileans considering it a human rights abuse. That’s why the public’s response to the AFPs was one of the driving forces behind the social protests that erupted Oct. 18. The criticism revolves around the high risk that participants have of losing their funds, while at the same time not having the option to simply opt out of the system.

The AFPs function on contributions, i.e., Chileans pay 10% of their income into a fund. Pension managers then use these resources to buy stocks and invest locally or globally. Many workers, especially single mothers and a rising number of freelancers, however, either cannot pay enough per month to see sufficient payouts in old age, or lose out due to bad AFP investment decisions over which they have practically no control.

This last factor has people worried because it means 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.

Some have attempted to take their pensions out of these funds, but their requests have been dismissed as inadvisable by the Senate. Current Finance Minister Ignacio Briones, defended the Senate’s decision, saying that if people take money out of their pension now, they would have less money for retirement.

 

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