Chile’s Congress approved a major change to its private pension system, which will now move to President Gabriel Boric for signing.

The reform passed with 110 votes in favor and 38 against, aiming to raise the guaranteed minimum pension, increase employer pension contributions, and alter the structure of the country’s private pension management system (AFP).

This reform was a major promise from Boric, who came into power after mass protests against inequality. Chile’s private pension system, set up during the dictatorship in the 1980s, has faced criticism for offering low payouts, even though the pension managers make large profits.

The new law will gradually increase employer contributions to pensions, aiming for 8.5% over several years.

The reform introduces a new social security system to address inequalities, including the gender gap in pensions. It also changes how pension funds are managed, splitting the system into administrative and investment roles, and allows new players, including international firms, into the market.

Chile’s pension system manages about $186.4 billion, according to JP Morgan, and is seeing monthly growth in its savings.

Finance Minister Mario Marcel emphasized that the reform is financially responsible and will boost economic growth, even though it might lead to some job losses at first due to higher labor costs.

The government believes the increase in growth will help create more jobs in the long term, helping offset those costs.

This reform marks a significant step in addressing pension issues and economic disparities in Chile, according to Reuters.

Credit : Reuters

https://www.reuters.com/world/americas/chiles-congress-approves-reform-private-pension-system-2025-01-29

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