Chile: Employer Contributions to Employee Pension Plans Proposed

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By Tom Azzopardi

Aug. 16—The government of President Michelle Bachelet hopes to shore up the state retirement system by imposing new contribution requirements on employers, Bachelet announced August 9.

Speaking on national television, the president outlined a range of measures designed to improve pensions over the short and long term.

“The current system has led many, too many to receive very low pensions and abandoned them to their fate,” Bachelet said. “It is our challenge as a country to correct this situation.”

Sharing the Burden

Under Bachelet's proposal, pension contributions would increase gradually over the next decade from the current 10 percent of employee income to 15 percent. Employees would continue to be responsible for the 10 percent, as they are now, and employers for the additional 5 percent of income. Employer contributions would finance a new collective solidarity fund to increase current pensions and ensure more equal pensions in the future.

The new system would be significantly different from the model of individual, privately managed pensions introduced by military dictator Augusto Pinochet in the early 1980s. The Chilean model has been adopted to varying degrees by a dozen countries around the world, but many Chileans are unhappy with the low benefits they receive.

No ‘Easy Solutions'

Bachelet's proposal has already been criticized by some commentators (economist and businessman Paul Fontaine called it a tax on jobs), but the president noted that the largest cost would be shouldered by the state as the country's largest employer.

The core of the model will remain individual contributions by workers, but Bachelet promised a series of measures to improve transparency and performance.

For instance, pension fund administrators (known as AFPs from their initials in Spanish) will not be allowed to charge commissions when their investments produce losses for savers. A series of hidden commissions will also be eliminated, and savers will be able to elect a representative to the board of each fund. Steps will also be taken to reduce the gap between men's and women's pensions, and raising the retirement age will be considered.

Bachelet warned that implementation of the changes will take time and that the reforms will have to be debated with business leaders, workers and experts to reach a national consensus.

“There is no space there for easy solutions or false promises as they will harm all of us in the end,” Bachelet said.

To contact the reporter on this story: Tom Azzopardi in Santiago at

To contact the editor responsible for this story: Rick Vollmar at

For more information on Chilean HR law and regulation, see the Chile primer.

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