By Fabian Cambero and Alexander Villegas
SANTIAGO (Reuters) - Chile's Congress approved a reform to the country's controversial private pension system on Wednesday, clearing the way for the bill to be signed by President Gabriel Boric.
With 110 votes in favor and 38 against, the reform includes increased employer contributions, raises the guaranteed minimum pension and modifies the country's private Chile's Pension Fund Administrators (AFP) system.
Pension reform was a key campaign promise by Boric, who rode a wave of left-wing optimism to the presidency following mass protests against inequality.
Chile's current private pension system started in the early 1980s during the Augusto Pinochet dictatorship and relied solely on worker contributions managed by the AFPs.
There have been multiple attempts to reform the system, which has been criticized for paying out low pensions and while AFPs consistently register large profits.
The new bill, reached in agreement with the country's center-right opposition, increases employer contributions to pensions to a total of 8.5% over several years.
The reform creates a social security system that aims to improve pensions and correct inequalities in the system, including the gender disparity in pensions.
The bill also splits the current AFPs into separate administrative and investment entities and allows new pension fund administrators, including international companies, to enter the market.
According to JP Morgan, Chile's pension system managed $186.4 billion in savings as of December 2024 and has a net monthly inflow of $320 million.
Speaking to Congress on Wednesday, Finance Minister Mario Marcel said the reform was fiscally responsible and sustainable and had periodic review mechanisms.
The government noted that the increased employer contributions would lead to job losses due to increased labor costs, but said the increased savings would lead to greater economic growth.
"With this increased growth we're going to generate more jobs that will largely compensate for the negative impact that increased labor costs will have," Marcel said.