Chile has approved social security reforms increasing employer contributions over time to enhance retirement outcomes and competition among AFPs. Contributions will rise significantly, and the reforms include specific provisions aimed at assisting female pensioners. Employers are advised to review their benefits in light of these systemic changes.
Chile’s Congress has recently approved significant social security reforms to enhance retirement outcomes for workers, primarily affecting employer contributions. This reform is designed to bolster competition among service providers and will be enacted shortly after the law’s publication in the coming weeks. Chile’s social security system relies heavily on individual defined contribution accounts managed by private fund administrators, known as AFPs, with contributions set at 10% of employee salaries.
Employer contributions will see a progressive increase over the next nine years, rising from 1.5% of pay to 8.5% by 2034, with a possibility of extension to 2036. These additional contributions (7%) will be allocated as follows: 4.5% will go to individual DC accounts, 1% will fund a new social security fund for survivors and disability pensions, and 1.5% will be managed by the Instituto de Prevision Social, providing new retirement benefits.
For women, the reforms include a minimum pension supplement of 0.25 UFs monthly, aimed at ensuring equitable benefits upon retirement. The eligibility criteria for receiving these new benefits entail 10 years of insured employment for women and 20 years for men. There is also a structural change for AFPs, requiring the auctioning of services for 10% of participants every two years, aimed at fostering competition among providers.
Furthermore, the existing five risk-based investment funds will transition to ten target retirement date funds, aligning better with varied retirement timelines. The need for these reforms has arisen from long-standing inadequacies within the AFP system, with 85% of female pensioners receiving incomes below minimum wage. Employers are advised to reassess their pension offerings and prepare for increased labor costs due to these reforms.
Chile’s recent social security reforms aim to significantly enhance worker retirement outcomes through increased employer contributions and improved competition among AFPs. Over nine years, employer contributions will rise from 1.5% to 8.5%, with provisions to assist women and establish new retirement benefits. As these changes unfold, employers must carefully evaluate their benefits structures and be prepared for associated labor costs.
Original Source: www.wtwco.com
