Chile's Bachelet to submit pension reform bill to congress

A proposal for a pension system reform that would increase pensions being paid by 20% and future pensions of current contributors by 50% was announced by Chile's President Michelle Bachelet.

A bill is due to be drafted and submitted to congress around July, finance minister Rodrigo Valdés was reported as saying by broadcaster Radio Biobío.

Chile's pension system mainly comprises private pension fund managers, known locally as AFPs.

The proposal's main points are the following:

• Increase by five percentage points employees' monthly pension contributions, which would raise the total contribution to 15% of his or her salary. The 5% would be paid by the employer and phased in over a period of six years.
• The 5% increase would be managed by an autonomous state entity which would operate under "strict rules and to high professional standards so that its efficiency, transparency and independence cannot be brought into question," said Bachelet.
• The 5% increase would be divided: 3% would go to an individual account, and 2% to a collective-savings insurance pot. The individual account would be inheritable.
• Contributors to AFPs would be able to participate in the establishing of investment policies as well as in the resolving of conflict of interests.
• Contributors, through a so-called members commission, would have a role in the appointment of directors of companies where the pension funds are invested.

The retirement age of 65 for men and 60 for women would not be changed.

The proposal drew some criticism.

"We believe that a lack of agreement in the technical negotiations is bad news for Chileans," Eduardo Vildósola, CEO of AFP Capital, said in a statement.

"The financing proposal is equivalent to a regressive tax," Alfredo Moreno, president of the industry and trade chamber CPC was quoted as saying by local paper Diario Financiero. Moreno added that the 2% is a "tax on labor" and that it should be financed through the general budget, "which is the normal way that tax are collected."

No+AFP (no more AFPs), a pressure group that has organized massive national rallies demanding the end of the AFP system and its substitution with a pay-as-you-go scheme, said: "If a 2% rise increases pensions by 20-50% why let AFPs manage the other 10%?"