Chile’s Pension Reform Approved

By Fabian Cambero and Alexander Villegas

SANTIAGO (Reuters) – Chile’s Congress approved a reform to the country’s controversial private pension system on Wednesday, clearing the way for the bill to be signed by President Gabriel Boric.

With 110 votes in favor and 38 against, the reform includes increased employer contributions, raises the guaranteed minimum pension, and modifies the Chilean Pension Fund Administrators (AFP) system.

Pension reform was a key campaign promise by Boric, who rode a wave of left-wing optimism to the presidency following mass protests against inequality.

Chile’s current private pension system began in the early 1980s during the Augusto Pinochet dictatorship and relied solely on worker contributions managed by the AFPs. There have been multiple attempts to reform the system, which has been criticized for low payouts despite AFPs registering large profits.

The new bill, reached in agreement with the country’s center-right opposition, increases employer contributions to pensions to a total of 8.5% over several years. The reform creates a social security system aimed at improving pensions and correcting inequalities, including gender disparities.

Additionally, the bill splits current AFPs into separate administrative and investment entities, allowing new pension fund administrators, including international companies, to enter the market.

According to JP Morgan, Chile’s pension system managed $186.4 billion in savings as of December 2024 and had a net monthly inflow of $320 million.

Finance Minister Mario Marcel stated that the reform was fiscally responsible and sustainable with periodic review mechanisms. Although the government acknowledged that increased employer contributions might lead to job losses, they believe the resulting growth will compensate for the negative impacts on labor costs. Marcel asserted, “With this increased growth we’re going to generate more jobs that will largely compensate for the negative impact that increased labor costs will have.”