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FIAP > Boletín – Otras Publicaciones > Reform of the pension system in Chile – The management of the additional 4% – LyD Public Issues – July 2019

Reform of the pension system in Chile – The management of the additional 4% – LyD Public Issues – July 2019

17 July, 2019

This report briefly describes the amendments to the bill of law for improving the pension system in Chile, which mainly concern the way in which the proposed additional mandatory 4% contribution will be managed. The amendments create a new “entity” which will bid for the management of the additional mandatory contribution, among other functions. The AFPs will be prevented from participating in the bidding process.

Unfortunately, according to the article, the discussion of this bill of law has mistakenly concentrated on who will be responsible for managing the 4% additional contribution, a matter that has no major impact on the real issue at hand, which is to increase pensions. The AFPs, which have successfully managed the savings of the pension system for almost 40 years, have been inexplicably excluded from the management of these additional funds and a cumbersome political solution for managing these investments has been proposed, creating an additional institutional framework that will eventually result in higher costs for all involved. It is also very likely that in a few years from now, we will again have to discuss the need to increase the mandatory contribution rate and how this additional percentage will be managed. Thus, according to the report, the way things are going now, the most sensible solution would probably be to simply create a state-managed AFP, with the same conditions and requirements as the private AFPs, letting members decide where they want to deposit their entire pension savings.

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