Chile's Congress passes contentious pension bill in blow to establishment
Updated: Jul 25, 2020
SANTIAGO, CHILE — On Thursday, Chilean President Sebastian Pinera yielded to intense public pressure and agreed to sign a controversial pension bill.
At the Congress, 116 out of 209 deputies voted for the bill, allowing citizens to tap into 10% of their retirement savings. This landmark bill is meant to amend Chile's private pension funds.
A pension is a fund into which the state deposits money during an employee’s years of employment so that they can avail regular payments to support themselves after they reach the official retirement age.
In Chile, pension funds are supervised by the government-regulated Pension Funds Administration (AFP). The AFP's private pensions were instituted during the Augusto Pinochet dictatorship. The funds are one of the most disputed legacies of the dictatorship. Hence, many claim it has no place in the Chilean democracy.
The modifications to be made to the private pension funds include allowing current retirees to withdraw funds and giving people around a year to tap into their savings and pensions funds with only 40 days to pay the money.
The government could have blocked the bill's implementation by sending it to the constitutional court or getting the president to veto the proposal. However, if the government did go forward with these options, it is plausible that demonstrators would have taken to the streets, even with Chile being one of the countries worst hit by the Covid-19 pandemic.
According to political scientist Cristóbal Bellolio, the bill represents Chile’s “Brexit moment” as it is a symbolic blow to the establishment.
Conversely, many economists and policymakers have opposed the changes as the pension funds hold approximately $200 billion in assets and are the basis for Chile’s capital markets.
The government’s budget office claims that the bill will have major fiscal implications since the funds are equivalent to 2.5% of GDP (around $6 billion). The private pension funds are also known to be Chile’s largest institutional investor with about 75% of local government debt.
Pinera’s government disclosed economic measures for the middle class to dissuade lawmakers from backing the bill.
Nevertheless, five members from Pinera’s coalition ended up voting for the bill. While the President's government has promised “deep reform” of the pension system, it is evident that such actions could have colossal ramifications.
Reporter- Ananya Sreekumar