Proposed pension reforms aim to increase retirement pensions for current and future retirees, primarily by introducing and gradually increasing employer contributions to social security pensions. In Chile, social security retirement, survivors’ and disability benefits are based on compulsory individual defined contribution accounts managed by private fund administrators (Administradoras de Fondos de Pensiones – AFPs); these accounts are funded primarily by employee contributions (10.0% of covered pay). Employers are currently not required to fund social security retirement benefits, except for workers employed under arduous or hazardous working conditions.
There is a broad consensus on the need for some type of reform due to the inadequacies of the AFP system and small size of the market for private company or individual pensions. Only 7% of employers surveyed by WTW offer company pensions. According to the government, 72% of current social security pensioners have income below the minimum wage, and one in four are below the poverty line. The reform proposals were initially announced in November 2022, but the government had no success in persuading Congress to act. In August 2023, the government relaunched the proposal following public consultations. The bill is currently with the Chamber of Deputies, but it’s unclear if the government has the votes for passage in both houses of Congress. Conservative opposition parties are arguing that the 6% employer contribution should go entirely to individual accounts, with any increase in minimum pensions to be funded by the government. Companies should monitor development of the legislation closely.