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FIAP > Boletín – Recientes > Pension Notes No.58 – Impact of withdrawals from Chilean pension funds on the economy and individuals – December 2021
19 January, 2022

Pension Notes No.58 – Impact of withdrawals from Chilean pension funds on the economy and individuals – December 2021

  • Pension fund withdrawals should always be a last resort. However, in Chile three withdrawals have already been approved, despite the fact that organizations such as the OECD have recommended that they should not be used for providing financial assistance.
  • The Chamber of Deputies recently rejected a 4th withdrawal project. Given the failure of this legal initiative, some political sectors will be insisting on a 5th withdrawal, but its probability of success is low.
  • If the health, economic and social variables are analyzed in detail, they still do not seem to be factors that explain the logic of a fourth withdrawal. Today, as a result of the three pension fund withdrawals, 3.8 million people were at some point with zero balances on their accounts
  • After the three withdrawals of pension funds, the decrease in the balance of men is 24.3% and that of women 33.3%, which implies that, to recover the funds that existed before the withdrawals, men and women would have to contribute for 5.6 and 6.3 more years, respectively.
  • The three withdrawals of funds have also had an impact on rising inflation, which has a strong impact on prices, as well as on the payment of workers’ mortgage loans, being, in addition, highly regressive since it hits the budgets of the poorest families harder.
  • Added to the above is the strong impact on the local capital market due to the forced liquidations of a large volume of assets, which also generates an increase in interest rates for all terms and types of loans. This same situation has caused a negative return in pension funds with greater exposure to fixed income.
  • Another impact of these withdrawals is their negative effect on citizens in the mortgage market: higher cost of financing (interest rate increases by almost 1.7 percentage points), shorter loan payment terms (from 30 to 15 years), higher Income required for access, and a higher down payment (from 20% to 30% of the value of the home). The combination of higher interest rates and income required for accessing loans limits the access to housing of thousands of families, which mainly affects middle and low-income households, adults with low savings capacity, and young people with short working lives.
  • Simulations show that the financial burden of households could increase by up to $ 3.9 million per year (considering the payment of a higher dividend and consumer loan to finance part of the higher down payment), which is equivalent to suggesting that households should use an additional 21.5% of their income to offset the effects of fund withdrawals.

In order to read this full Pension Note, please download it here.

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