(Bloomberg) -- Chile’s Congress gave its final approval to a reform that will boost pensions for current and future retirees, handing President Gabriel Boric a bittersweet win following major concessions from his government.
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The lower house of Congress backed the legislation on Wednesday after the Senate gave its approval through both general and item-by-item votes early on Tuesday. The go-head followed a marathon of talks between lawmakers and the government over both the bill’s contents and its financing.
The reform represents the best attempt at reaching middle ground on arguably the most contentious problem gripping Chile. There’s no question that the current system is detrimental to women and often leaves retirees in general living in poverty or having to find other sources of income in old age. Meanwhile, the private pension funds, known as AFPs, are the bedrock of the local capital markets, meaning any legal overhauls risk irking investors.
“I want to highlight the willingness to negotiate. This would have never come to light if everyone had stuck to their original positions,” Boric told reporters early Thursday. “This is a triumph for Chileans.”
Chilean lawmakers kept the AFPs in place, elating many on the center-right and in the business community while leaving Boric and his allies frustrated. On top of that, the AFPs will be in charge of managing new employer pay-ins to workers’ individual pension accounts that are equivalent to 4.5% of salaries.
“Consolidating a system that you promised to eliminate is not a good legacy,” lower house Deputy Marcos Ilabaca from the center-left Socialist Party said in reference to Boric during a local radio interview early on Wednesday. “It’s lacking truth.”
It marks the fist time since the current system was established in 1981 under the Augusto Pinochet dictatorship that companies will be obligated to contribute to workers’ individual pension accounts.
Some of Chile’s AFPs are owned by US companies. They include AFP Habitat, by Prudential; AFP Cuprum, by Principal and AFP Provida, by Metlife.
Universal Pensions
Another employer contribution worth 1.5% of salaries will go temporarily toward increasing payouts for retirees who need extra money now, with those funds later being returned to current workers when they end their careers. A further 1% will go toward women’s pensions and also funding disability insurance.