This edition of Public Matters, published by Instituto Libertad y Desarrollo (LyD), comments on the announcement by the Executive of a pension reform bill of law in Chile, to be sent to Congress in the coming months.

The announcement states that the contribution rate will gradually increase by 5 percentage points (from 10% to 15%), charged to the employer, over a period of 6 years. Under this proposal, 3 percentage points would go to workers’ “personal accounts” (“inheritable, wholly-owned”), and 2 percentage points to what is denominated “Collective Savings Insurance,” to improve both existing pensions (intergenerational or PAYGO component) as well as the pensions of those who achieve less savings and lower pensions (intragenerational component). All the enhanced savings resulting from the additional 5%, would be managed by a government agency. According to the Executive, this proposal would enable increasing current old-age pensions provided by the AFPs by 20%, on average.

According to the LyD report, the design of the bill of law as announced, discourages individual savings, fosters informality in the labor market and generates a negative effect on employment. There is also the risk that the PAYGO component that would be introduced into the bill of law, would end up being perpetuated (and even increasing) over time, with the corresponding damage it would entail.

This edition of Public Matters, published by Instituto Libertad y Desarrollo (LyD), comments on the announcement by the Executive of a pension reform bill of law in Chile, to be sent to Congress in the coming months.

The announcement states that the contribution rate will gradually increase by 5 percentage points (from 10% to 15%), charged to the employer, over a period of 6 years. Under this proposal, 3 percentage points would go to workers’ “personal accounts” (“inheritable, wholly-owned”), and 2 percentage points to what is denominated “Collective Savings Insurance,” to improve both existing pensions (intergenerational or PAYGO component) as well as the pensions of those who achieve less savings and lower pensions (intragenerational component). All the enhanced savings resulting from the additional 5%, would be managed by a government agency. According to the Executive, this proposal would enable increasing current old-age pensions provided by the AFPs by 20%, on average.

According to the LyD report, the design of the bill of law as announced, discourages individual savings, fosters informality in the labor market and generates a negative effect on employment. There is also the risk that the PAYGO component that would be introduced into the bill of law, would end up being perpetuated (and even increasing) over time, with the corresponding damage it would entail.