Chile - Financial Sector Assessment Program, November 2021 : Pension System
The pension system in Chile is known for the 1980 establishment of a defined contribution, individual account system managed by private pension funds (AFPs). In 2008 a major reform of the system took place to address issues of low coverage and low...
| Main Authors: | , |
|---|---|
| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2022
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099455207152241762/P172020034616d00409bb10dac389ad9d3b http://hdl.handle.net/10986/37751 |
| Summary: | The pension system in Chile is known
for the 1980 establishment of a defined contribution,
individual account system managed by private pension funds
(AFPs). In 2008 a major reform of the system took place to
address issues of low coverage and low pension rates. In
2019 the Solidarity Pension rate was raised to the poverty
rate following severe social unrest which included protests
against the pension system, whilst in 2020-2021 large
emergency withdrawals have been allowed from the funds in
the context of the Coronavirus (COVID-19) pandemic. The
funded pension system has made a significant contribution to
financial sector diversification and stability, while
promoting sustained economic growth and development, and
should be maintained. Further withdrawals should be avoided,
and the contribution rate increased. An employer
contribution of at least the proposed 6 percent is needed to
improve pension levels and could be managed by a public
entity with strong governance in a way which complements the
AFP system. A non-profit AFP could be established to compete
with and act as a standard setter for the private funds
managing the existing 10 percent employee contributions. To
contribute to long-term investment and financial stability,
the multifondos investment regulation should be replaced
with a ‘target date’ default, delineated by retirement age,
along with a limited number of investment options, with
switching contained and some access to funds for specific
purposes strictly controlled. The risk-based supervision
model of the SP should be recalibrated to further transition
from a compliance approach. |
|---|