SANTIAGO – The criticized pension system in Chile (AFP) will be reformed. President Piñera announced yesterday that on at least four points the national system will be modified. Earlier this month, the pension system in Chile had been named “8th best pension system in the world” by an Australian investigation.
The Chilean pension system (AFP) will receive a reform, described by president Piñera as a “Mega Reform”. Every month, even last week in cities throughout Chile, people take the streets in Chile to protest the pension system as they often find themselves after retiring in financial challenging situations. More than 90 percent of the Chileans receive a pension that is less than 233 US dollars per month, half of the minimum wage in the country. The reform is focused on four main points:
- Pensions of workers will increase with 40%, as both the state and employers contribute 4% extra to the current pensions of working people. This measure will be implemented slowly, to not disturb economic growth.
- The Solidarity Pillar, or Pilar Solidario in Chile, where pensions benefit from economic growth, will go from the current 0.8% to 1.12% of GDP. This rise means an increase in public spending close to USD 1 billion.
- Minimum pensions of middle-class pensioners will receive state contributions. Women will receive a higher contribution than men.
- People who decide to keep working after their retirement age will receive contributions too – this way their pensions can increase up to 40%. Half of what people are saving by postponing their retirement goes to retirement funds, while the other half may be freely withdrawn by the worker, once the worker decides to retire.
Besides improving the pensions of Chileans, the idea of the pension reform is according to Piñera to increase competition within the system. The pension system of Chile has been reformed on different occasions in history.
In 1980, the older brother of current president Piñera, José Piñera, privatized the pension system. It resulted in rising contributions from Chilean workers, who often didn´t get back the money they contributed. In 2008, then president Michelle Bachelet reformed the pension system again, mainly focusing on including more Chileans, having had employment or not.
Editor-In-Chief Boris van der Spek is the founder of Chile Today.