The Pension Reform has taken an important step in its passage through Congress. After receiving approval from the floor of the Chamber of Deputies, the bill, which has been before Congress for more than 15 months, has been dispatched to the Senate to start the second stage of its passage.
The Minister of Labor and Social Security, María José Zaldívar, who signed a protocol of agreement with Christian Democrat parliamentarians and independents, valued the support of the majority of the deputies for an initiative that will benefit more than 800,000 senior citizens.
“With this step in the Chamber of Deputies and having reached an agreement with an important part of the opposition that I value and appreciate, we can continue to move forward and dream of fulfilling our main goal: to begin paying better pensions as soon as possible. As we have insisted many times, our pensioners cannot continue to wait,” said Minister Zaldívar.
Essentially, the bill will increase the current contribution rate from 10% to 16%, which will occur gradually and be paid by the employer. Out of the increase, 3% will be used to complement each worker’s personal savings while the other 3% will go into a new Solidarity Collective Savings Fund.
“The original bill presented by the government was totally different. With the amendments that were presented and now these improvements that will be incorporated in the debate in the Senate (…), the bill very definitely incorporates solidarity, incorporates a robust state agency designed to administer these new funds and, of course, seeks to improve the pensions of both current and future pensioners,” explained Zaldívar.
Details of the proposal
The agreement reached with the Christian Democrat parliamentarians and independents improved the government’s initial proposal on four central points. The first is that the benefit to be paid to women pensioners with at least 8 years of contributions was raised from 2.5 unidades de fomento (UF) to 2.7 UF (some 80,000 pesos) and will be financed out of the new solidarity collective savings. Similarly, men with at least 12 years of contributions will receive 2 UF (approximately 56,000 pesos).
It was also agreed to strengthen the state body that will administer the 6%, which will function as an “Agency”, and to transfer to the solidarity collective savings fund the balances or inheritances remaining with a private pension fund administrator (AFP) that have not been claimed by the holders or the heirs of deceased affiliates. This implies some US$300 million for the new collective savings pillar with which to improve benefits.
Finally, the agreement would extend from ten to 20 years the period for reimbursing the fiscal resources used to finance benefits in the first years of the new collective savings system.
In the case of the AFP system, the government bill envisages measures to increase competition by, for example, permitting the entry of nonprofit actors and the creation of cooperatives by affiliates. It also establishes measures that will improve service quality and give affiliates greater participation in the AFPs and the investment of their savings. It also envisages adjustments to oblige the AFPs to return part of the commissions charged to contributors when there is a negative return on their savings and to pay a funeral expense allowance for deceased affiliates without the resources to cover this cost.