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image source, AFP
The end of AFP was one of the big demands of the social outbreak at the end of 2019.
One of the main demands of the social outbreak at the end of 2019 in Chile was the abolition of the current pension system.
And it became one of the symbolic pre-election promises of leftist President Gabriel Boric, who announced this Wednesday that he will send a bill to Congress to change the current private system of pension fund managers (AFP).
“AFPs are finished in this reform,” said Borić, announcing that the reform is based on the principles of social security with contributions from the state, employers and workers.
One of the most significant changes in the proposal is that it contemplates the establishment of a state body, a public asset manager, in order to put an end to the exclusive management of the criticized AFPs.
“There will be new private investment managers with the sole purpose of investing pension funds and, in addition, there will be a public alternativewhich will enable the stimulation of competition with the entry of new actors”, said the president.
The original Chilean pension model, created in 1980 during the military regime of Augusto Pinochet, is based on mandatory savings of workers in an individual account managed by AFPs and whose funds are invested in the capital market.
In 2008, during the first government of President Michelle Bachelet, a basic solidarity pension was added to the system, consisting of state contributions for the most vulnerable people.
image source, Getty Images
Gabrijelo Borić’s proposal is one of the key reforms of his government.
“In Chile, 72% of pensions are less than the minimum wage and every fourth retiree receives a pension that is below the poverty line,” said Borić, who became president in March of this year, and whose approval rating dropped to 27 percent, according to the latest Cadem survey.
“This is happening at the same time that AFPs are receiving huge profits, even though the results and profitability of the funds are negative,” the president added.
What does the proposal say?
- Mixed pension system with contributions from the state, employers and employees.
- The creation of a public body that manages the funds and abolishes the exclusive management of AFPs. It was conceived as social insurance pension from the collective savings fund with individual records.
- Employers contribute to pension funds gradually up to 6% of the contribution.
- Workers save 10.5% of their monthly salary.
image source, Getty Images
- A reduction in the fees companies charge their clients for managing their funds and more competition among companies through industry reorganization.
- Pension savings in individual accounts accumulated now and in the future, remain in individual ownership and can be inherited, as in the current system.
- Pensions recognize “household and caregiving” work that falls mainly to women in Chile.
- It increases the Universal Guaranteed Pension (PGU) received by people on lower incomes and the coverage of this benefit.
According to government calculations, a person who paid a salary of about US$425 a month for half of his working life currently receives a pension of about US$280.
According to the new system, that person would earn about 415 US dollars, or 46% more in the case of men and 52% more in the case of women.
Why is it so hard to get approved?
Financing of the pension system reform proposed by the Government It depends on the approval of the tax reform the president, who does not have the support of the opposition and has only just begun the parliamentary debate.
In the current Congress, the most divided since Chile returned to democracy, the ruling coalition isThat minority in both houses and has the smallest number of representatives and senators in recent decades.
image source, Getty Images
In the demonstrations against the AFP system, people shouted against the profits made by private companies that manage the individual savings of workers.
On the other hand, part of the ruling alliance voted against several of Borić’s proposals, which is a sign that the initiative may not be guaranteed the full support of the political bloc.
Defenders of the current system argue that the model contributed to the development of a national financial market that allows companies to finance projects and therefore explains one-third of the higher economic growth Chile has experienced since 1980, according to a study by the AFP Association, a trade union organization that brings together private companies.
Its detractors, however, believe that the AFP’s investments have only benefited the elites and that the system only works if you have a stable job throughout your working life and a high income, something that is unattainable for the vast majority. workers.
This is the third attempt to reform the pension system, after the projects of the governments of Michelle Bachelet (second term) and Sebastián Piñera failed to take off.
During the covid-19 pandemic, opposition representatives early withdrawals approved individual funds of workers managed by the AFP, as an emergency measure to deal with the health crisis.
This meant that for the first time in the country’s history, Chileans used their personal savings before old age, accessing billions of dollars that came from the private system.
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