The Chilean Parliament gave the green light this Wednesday by a large majority to a pension reform promoted by the Government of Gabriel Boric that seeks to improve low pensions and proposes the most significant changes to the model created more than four decades ago by the dictatorship.

“It’s a tremendous achievement for Chile. It is an act of justice, of deep affection and respect for our people, which responds to what is one of the biggest debts that our country drags,” the president said in a public statement from the La Moneda palace.

Here are the keys to a reform that for some is “decaffeinated” and for others is an “achiemement” of a very polarized political class, which has not agreed for years on the great structural changes that Chile requires:

Established in 1981, in the middle of the dictatorship of Augusto Pinochet (1973-1990), the Chilean system was a pioneer in the region in installing individual capitalization and forcing each formal worker to contribute 10% of his monthly salary to a personal account that he can dispose of when he retires, managed by the controversial private pension administrators (AFP).

Its defenders argue that the model has contributed to the development of the national capital market, while its detractors consider that it is an abusive and unfair system and that it only works if you have a stable job and a high income, something unthinkable for the vast majority of Chileans.

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“This system has not worked because of the way pensions are calculated. People who contributed between 35 and 40 years and retired in 2023 had a replacement rate of 32.6%, this is a third of their average 10-year salary,” María José Azócar, of the Sol Foundation, told EFE.

Pensions have been leading the polls on major citizen concerns for years and citizens had lost confidence in the ability of politics to improve them.

The refoundation of the system was also one of the main demands of the 2019 protests.

None of the reforms proposed by the Governments of Michelle Bachelet and Sebastián Piñera came to the surface and only partial achievements were obtained such as the creation of a public pension for the most vulnerable in 2008 and its expansion in 2022.

The reform, which has undergone substantial modifications since it was presented by the left-wing Administration in 2022, seeks to benefit 2.8 million retirees, with increases in their pensions of between 14% and 35%.

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It also increases the universal basic pension to 250,000 ($253); gradually raises the contribution to 17%, at the expense of the employer; creates social insurance; incorporates intra- and intergenerational solidarity mechanisms and tightens industry regulation to make it more competitive.

“It is a reform that changes the face of what the dictatorship did to this country,” said the Minister of Labor and Social Security, Jeannette Jara, after the approval.

The economist of the University of Chile Guillermo Larraín explained to EFE that “the most advanced countries have mixed systems, but these are more dominated by the State, while in Chile the path has been the other way around, because it is moving from a very private system to a slightly more public one.”

It was negotiated with the traditional right-wing coalition Chile Vamos and, although it is far from what the Government aspired to, it is a breath of air for Boric, since it was one of his great campaign promises, along with the tax pact that he still does not manage to move forward.

The most radical part of the coalition that makes up the Government (Communist Party and Broad Front) voted in favor, despite believing that too many concessions were made during the parliamentary debate and that they gave up eliminating the AFPs and creating a system with greater state weight.

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“This reform is valid and perfects the system of the AFPs. In the long term, 6 more points will go to individual capitalization, when in the original Government project those 6 points went to social insurance so that Chile could catch up on the international stage and not continue to be an extreme case,” said Azócar.

Skepticism also reigns in the street: according to the latest Data Influye survey, 64% of those over 55 believe that the reform will not “definitely” solve the problem of pensions, compared to 33% who believe that it will only solve it “in part” and 1% who are very satisfied.

The only ones who voted against were some of them from Chile Vamos and the deputies of the different far-right parties in Parliament, opposed to any distribution system.

The leader of the far-right Republican Party, José Antonio Kast, who lost to Boric in the 2021 elections, charged against the reform in X for “taking away from workers one of their most precious assets, the right to property over their savings” and warned that he will repeal it if he manages to come to power in the elections at the end of the year.

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