Chilean Congress approves “idea of ​​legislating” pensions but rejects distribution proposal

The Chilean Congress accepted this Wednesday “the idea of ​​legislating the pension reform project“, in a bittersweet day for the Government, which saw how the deputies rejected its other star proposal, a 6% distribution system, “where 3% was allocated to individual capitalization accounts and the rest to a solidarity fund”.

A proposal that sought to raise the lowest pensions, especially those of women, and move towards dignity in a country where the majority do not exceed $250 per month, one of the lowest rates in the OECD.

Beyond this rejection, the pension reform of the Chilean president, Gabriel Boric, today won its first major battle in Congress, which approved the idea of ​​legislating the project. After discussing more than 100 indications and eliminating some of the parts considered central to the government, the initiative was sent in the afternoon to the Senate to continue the legislative process.

The Executive needed 78 of the 155 votes in the chamber, but finally achieved 84 votes in favor, 64 against – from the right-wing parties that had already announced their opposition – and three abstentions, in the middle of a tense day in which the Partido Democrat and deputies from two other groups outside the government gave him their favorable vote.

The abstentions corresponded to the deputy of the ultra-conservative Independent Democratic Union (UDI), Marta Bravo, her colleague from the traditional right Eduardo Durán (National Renovation) and the independent Marlene Pérez.

Thus began the legislative process for one of the campaign promises and main workhorses of the leftist Boric and also one of the most repeated demands by Chilean citizens since the social revolt of 2019.

This same Wednesday, the Chamber of Deputies addressed the 103 indications made to the project and some of its most controversial points, such as the distribution of that 6% additional contribution with which it was proposed to increase the amount of pensions and which would be borne by from the employer, who until now had not contributed anything to the system.

The government wanted to dedicate that percentage entirely to a solidarity pension fund that would help finance, for example, the lowest pensions for women, but it gave in to obtain the votes so that only 3% went to the solidarity fund and the other 3%. % to the individual contribution of each pensioner.

Rejection

This point, the heart of Boric’s reform, was rejected by large sectors of deputies, so the regulatory text that reaches the Senate is far from what was initially proposed by the government. Neither did the idea of ​​the Integrated Pension Fund and the public manager who was going to be in charge, nor the idea of ​​the State Pension Investor prosper.

The article on the distribution of 6%, which the right and the extreme right oppose in a single bloc, was rejected with 76 votes in favor, 75 against and 0 abstentions.

On the other hand, a “social security insurance” to finance contributory benefits and supplements for gender and care gaps aimed at improving women’s pensions, which are much lower as they are affected by contribution gaps.

The passage of the law by Congress was received as a partial victory for the Executive, after 14 months of processing and the participation of more than 100 deputies in the discussion during the day.

The Chilean Minister of Labor, Jeannete Jara, highlighted: “We see it with moderate optimism”. He admitted that the central thing is that “the idea of ​​legislating has been approved”. However, the opposition stated that the law advanced as “an empty project, it is a shell, it is a project that has no content”, in the words of deputy Guillermo Ramírez, of the Independent Democratic Union.

The ruling party expects a debate “more noun” in the Senate, according to the Minister of Finance, Mario Marcel.

In the last 10 years, the Chilean Congress has discussed reforms to the retirement system, inherited from the dictatorship of Augusto Pinochet (1973-1990), which forces workers to contribute 10% of their salary to a system administered by private administrations. of pension funds (AFP).

When they retire, the AFPs calculate what they have accumulated during their working life based on estimates of how long a person will live, which leaves the majority of Chileans with pensions that many of the deputies qualified during the discussion of the standard of “miserable” .

The average pension for men in 2023 was about 300 dollars and for women 163, according to data from the Superintendence of Pensions.

None of the reforms in the second terms of Michelle Bachelet (2014-2018) and Sebastián Piñera (2018-2022) came to light and only achieved partial achievements such as the creation of the universal pension for those most vulnerable sectors that do not reach the quotes, currently $235.

The House approved by majority on Wednesday to increase the amount of that pension to $275.

President Boric stated through the X network, formerly Twitter, that Congress “voted in favor of advancing the pension reform, a proposal we made thinking of Chilean families who have been waiting for too many years”. But he acknowledged that “we are still halfway there”.

The law will now be sent to the Senate and reviewed by its Labor and Finance Committees, after which it will reach the floor to be voted on. If it were approved with modifications regarding what was sent by Congress, it would return to that chamber for a third procedure.

The government does not have the necessary majorities in either chamber.

Increase in the Guaranteed Universal Pension

Where the Government did achieve a new victory was in the approval of transitional article 56, which allows increasing the amount of the Universal Guaranteed Pension (PGU).

“It will amount to a maximum of $250,000, provided that, in accordance with the provisions of this article, compliance with the condition relating to structural non-mining tax revenues measured as a percentage of the trend non-mining Gross Domestic Product of Chile is verified,” he added. .

The regulations voted on this Wednesday will now go to the Senate to be ratified.

In Chile there is currently a private pension system controlled by six private administrators, known as AFP, companies that receive money from employees and employers and place them in investment funds of different risks – chosen by the workers.

Once the worker retires, he does not receive all the accumulated money, but his capital is divided into a complex calculation that includes the years of contributions, the years remaining until he turns 120 and the percentages that correspond to the AFPs for the management of those funds.

The system was forcibly implemented by the dictatorship of Augusto Pinochet in the 1980s, as one of the pillars of the ultraliberal system experienced in Chile, and the military bodies were excluded from it.