AFP reform passes first major hurdle

CHILE - In Brief 09 Jul 2020 by Robert Funk

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The House of Deputies last night voted 95-25 (with 31 abstentions) in favor of going forward with a constitutional amendment that allows Chileans to claim up to 10% of their private pensions savings. The bill will now move on to the Deputies’ Constitution Committee, and then on to the Senate, but no matter what happens there, the political and economic effects are being felt.Politically, the vote represents a major political defeat for the Piñera government and Finance Minister Briones, who had been trying until the last minute to negotiate a different arrangement. The vote required a three-fifths majority (which had led observers, including myself, to consider the passing unlikely). What changed was that 13 deputies from the government’s own coalition voted in favor. Here lies Piñera’s real defeat. It shows the deep fissures within government ranks, and the willingness of many deputies to cave to public pressure, even when they know that the effects of the bill are unfavorable for the country and for their own president.Economically, the proposal makes little sense, although the exact details are yet to be hashed out. For the time being it seems that the gist of the proposal is to allow Chileans to withdraw up to 10% of their AFP savings, up to 4 million pesos (about USD 5000). Those whose total AFP savings are less than 10 million pesos will still be allowed to claim 1 million pesos (US1300). Those with no AFPs or the very wealthy (who would receive a pension of about 700,000 pesos (USD900)) would not be able to claim anything (this includes, for example, many independent small business owners or those in the informal sector, who have never paid into the system).The ...