Borić presents a deep pension reform in Chile that abolishes private fund managers

The President of Chile, Gabriel Boric, during his visit.
The President of Chile, Gabriel Boric, during his visit.Presidency of Chile EFE

Chilean President Gabriel Boric announced this evening in a message on the national channel his long-awaited pension system reform project, one of the major pillars of his government program that aims to solve one of the pressing structural problems affecting the quality of life of citizens: low pensions in relation to the standard of living that citizens are of working age. The left-wing president did this almost eight months after arriving in La Moneda last March, at the very moment when his administration is facing complex political moments, after the defeat of the new constitution project in the September 4 plebiscite, which both Borić and the ruling party submitted. party supported. It is an important project that, among other things, would mean the end of pension fund managers, AFPs, private organizations that have been established since 1981 as a pillar of the Chilean system, based on individual capitalization and a pioneer in the world..

“AFPs are finished in this reform. There will be new private investment managers with the sole purpose of investing pension funds, and in addition there will be a public alternative, which will enable competition to be stimulated by the entry of new actors,” the left-wing president assured tonight about his proposal, which will be discussed in Parliament. If the congressmen approve – Borić does not have a majority in either chamber – Chile would have a mixed pension system, based on the principles of social security in which the state, employers and workers contribute, explained tonight the president and, after the national channel, his chief ministers in primetime television “In this way, we want to leave behind an extreme system that failed to meet the expectations that were placed on it and that recognized its shortcomings,” said Borić.

The head of state, who has 26 percent of popularity according to the Cadem poll, which measures it from week to week, gave different political views in this message. He reminded that this is the third attempt by a government to modify the pension system, because the previous two, that of Michelle Bachelet and Sebastián Piñera, failed: “We have no right to make them wait, that is not acceptable,” he said. convinced of the inability of the political class to provide a solution to the pension problem. But he added that his bet includes what was discussed in previous administrations and is therefore not starting from scratch. Referring to the main demand of today’s citizens, the control of public order and peace and the fight against crime, Borić assured that “security in all its dimensions is the main priority” of his Government. “This reform is particularly crucial for our task of providing certainty and guaranteeing social security to all our compatriots,” assured the 36-year-old president, who announced that “the major goal of this reform is to increase the pension amount while this is the law.”

Borić reminded that 72 percent of pensions in Chile are below the minimum wage and that every fourth pensioner receives a pension that is below the poverty line. “This is happening at the same time when AFPs are getting huge profits, even though the results and profitability of the funds are negative,” said the president, who cited examples with concrete cases. “A woman or man who spent half his working life with a salary of 400,000 Chilean pesos [unos 423 dólares]today they receive a pension of 257,000 and 268,000 pesos respectively [entre 272 y 283 dólares]. If this reform is passed, the pensions of both will immediately exceed 390,000 [412 dólares]”, which, he said, would increase by 46 percent for men and 52 percent more for women.

In a 15-minute televised message, the president who will rule until March 2026 tried to clarify the spirits that worry people. Borić assured that the new system will recognize and reward hard work throughout life; that pension savings in individual accounts – both accumulated and future – will remain private property, can be inherited and will never be expropriated; and that the system will allow the freedom of choice of who will invest pension funds, “an option that does not exist today, because we are all obliged to be in the AFP”.

Borić spoke about the pension system, which today is based almost exclusively on individual capitalization and which has proven to be extremely insufficient. “Instead of having a social security system, what we have today in Chile is a system that manages your savings and where everyone saves themselves as best they can,” said the president, who will propose “a new social security that will be financed through the contribution of employers who will will gradually increase to 6 percent, which will improve everyone’s pensions,” explained Borić. Noting that this insurance will make it possible to cover the shortfall in the pension and that it will recognize work in the household and care, among other things, the Chilean president explained that the monthly pension will then consist of three pillars: an individual capitalization system through mandatory contributions that belong to each worker; social insurance contribution of 6%, which workers will have to pay; and the state’s contribution through the universal guaranteed pension (PGU), which will be increased to 250,000 with this reform [264 dólares]after the Government succeeds in implementing the tax reform.

For the economist and former manager of the pension system, Guillermo Larraín, what President Borić announced tonight “structurally points to the same thing that was proposed to the governments of the center-left from 2014 onwards”, although “it is a little stronger in language”. He explains: “The president said that the AFPs are ending, but what is ending is not private administration, but the name of the entities in charge of financial management of resources is being changed and transferred to an autonomous state entity ., obviously – management of administrative accounts”, assures the academician from the Faculty of Economics University of Chile. Larraín comments that the proposal would be in the right direction, in his opinion, although it will be necessary to read the details of the text that will reach Congress. “It is very difficult for the Parliament to approve it and it will probably be quite a big battle,” predicts the economist.

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