The Minister of Finance of Chile, Rodrigo Cerda, said a few moments ago that the Government is considering resorting to the Constitutional Court (TC) if the Legislative Branch advances with a new project to withdraw 10% of the pension fund to mitigate the economic impact of the coronavirus pandemic. Yesterday, the Constitution Commission of the Chamber of Deputies approved the project in general, with seven votes in favor and six against, so the initiative advances in its processing and goes on to be debated and voted on in the plenary session of the enclosure. The withdrawals of 10% of the questioned Pension Fund Administrators (AFP) have been the target of tensions between the Executive, which is not in favor of the measure, and the Legislative, controlled by the opposition with a simple majority, which have approved this measure on three occasions.
What is this about the pension system? Three years after the 1973 coup, the Chilean military dictatorship faced a radical reform of the system where the objective was to create an individual regime of private administration that would replace the state system of distribution. The new system was implemented only at the end of 1981 through a decree-law devoid of any democratic legitimacy. It was done in the form of the AFP, the Pension Fund Administrators created by José Piñera, brother of the current president who at that time was Minister of Labor and Social Welfare.In Chile operates a system of savings and individual capitalization, in which the money accumulated during working life is transferred to the AFP. Each person is obliged by law to contribute to one of the six administrators that currently exist. Now, how does the pension system work? Every month you are obliged by law to contribute 10% of your salary to the AFP and that money goes to what is called multi-funds, a structure of five Funds (A, B, C, D, E), which are divided according to the risk profile that the contributor has. That silver is invested, afPs are institutional investors in securities or trading effects such as shares of corporations that logically lead to a return.
That profitability is added to the 10% that you accumulate monthly so that you add money that would finance retirement when you reach 65 in the case of men or 60 in the case of women. Some of the criticisms are that wages in Chile are very low and therefore that 10% more profitability is insufficient; that there are sequences of pension gaps that are important as for example with the new forms of work or inequalities in terms of gender and that the State intervenes only by regulating the AFPs that take the savings and invest them through government regulations charging a commission on which they earn profits well above the citizens.
