Chilean Neoliberals lose to Left on Pension Takeout

By Ronald J. Morgan

Chile’s once vaunted pension system has fallen to public criticism. Major reforms are expected soon to provide a bigger payout to low-income persons and woman. The shortcomings of the 1980s system have long been known. But the political power to change them has only recently arrived.

Protests, October 18, catalized a major public shift away from neoliberalism.
The extent of the shift in political power in congress was demonstrated by the approval of a plan to allow pension participants to withdrawal 10% of their contributions in cash.

The idea was initially fought by the Sebastian Piñera administration but a split in the governing coalition and support from opposition parties pushed the change through the chamber of deputies and the senate.The bill passed the chamber of deputies with 95 votes including four rightwing Union Democrtica Independiente, UDI party. supporters. In the Senate the takeout was approved by 29 votes includng five votes from the president’s rightwing Chile Vamos coalition. 1. 2

The vote was considered a major defeat for the president and neoliberal holdouts who were against the 10% payout. It also seemed to demonstrate that government assistance programs to combat the Covid-19 emergency were not doing enough.

After passage, Piñera announced that he would not veto the legislation nor seek to appeal it to the Constitutional Court.

Chile Battles Covid-19 Amidst Political Crisis

Concern about renewed violent protests was cited by analysts as having swayed the president away from his initial position.

The measure quickly caused 8,819,599 pension members to apply for the 10% takeout. Lines formed, starting July 30, in front of pension operator offices seeking to access the payout to help with Covid- crisis expenses. When it was over, August 14, U.S. $8.682 billion was paid out. 3.

Efforts to change the overall pension system are also in the works. The current system requires little government financial assistance. It has accumulated $200 billion in assets and functions as a stimulus to the stock market as an institutional investor in stocks at home and abroad- But the system does far less well when it comes to paying beneficiaries.

While the plan was initially designed to pay out 70 percent of beneficiary salaries according to a recent Americas Quarterly article, the current payout is much less. The advocacy group No-AFP (No to Private Pension Fund Managers) calculates that the average payout to aged pensioners is one-third of their salary. The average is 38% for men and a lower 28% for woman. More and more Chileans are retiring on less than the minimum wage. Fundacion Sol of Chile reported that as of Dicember 2019. 50 percent of the 984,000 retired persons received less that $202,000 pesos, U.S. $261.49 even with their extra soilidarity benefit. 4. 5, 6. 

Much of the pensioners money is invested in powerful Chilean businesses through the stock market. This win for the business sector is also drawing heavy political oppostion.The system currently has six AFPs (AFP Capital, AFP Cuprum, AFP Habitat,  AFP Modelo. AFP Planvital. AFP. Provida.) which operate like individual retirement accounts (IRAs) These are operated by foreign and domestic companies. From January to June AFPs earned U.S. $180,5 billion on mostly stock market investments in Chile and abroad. Earnings were down 32% due to the Covid -19 economic downturn. 7.

The system is overseen by the government through the Superintendencia de Pensiones. But according to No-AFP the superintendents usually move on to a pension fund job after their tour at the oversight agency.

Lack of competition among the AFPS to provide better pensions is also being criticized. A 2008, reform under President Michelle Bachelet  March 2014 to March to 2018, and March 2006 to March of 2010) provided a state subsidized assistance to the 60% poorest of Chile but didn’t change the dominance of the AFPs.

But because of October 18, protests the nature of the AFP system is likely to change. An agreement reached following the protests calls for major pension reforms. The president announced in his recent Annual State of The Union address July 30, that he was supporting a new mixed pension system of government and AFP contributions which would increase the payout to older Chileans.

Piñera said in a conciliatory tone, that there was a need to expand the number of contributors and formalize the large subemployed sector. A fight is still expected in congress over the details of the program.

Left critics are demanding that workers be given more say in the running of the Chilean pension system.

The change has shown the shift in the balance of power in the Chilean chamber of deputies and senate. After the defeat for the Piñera coalition the president reshuffled his cabinet putting an accent on rightwing supporters. But the rightwing defections have left their mark. 8

The defeat cleared the way for an extremely popular personal cash takeout. The pension withdrawal plan caused an increase in Chileans belief that the Covid-19 economic crisis was being handled adequately.

A poll by CADEM showed 54% felt the economic situation was good to very good, an increase of 10% over the previous poll. Even though the average individual payout was only U.S. $1,377 U.S. dollars it created an euforia at having found some way to combat the effects of unemployment. Nevertheless getting the money required standing in long lines at AFP offices. 9, 10.

The Superintendcia de Pensiones has moved to fine AFPs for website difficulties, AFP Provida and other impediments to withdrawing the 10% AFP Modelo. Four AFPs, Habitat, Cuprum, Plan Vital, and Cuprum are being fined for sending out inappropriate letters during the congressional debate over the withdrawal plan. 11,12.

With a little over one month to go until the crucial plebiscite on a new constitution the vote showed the government’s growing isolation in defending the old economic model. The pension fund was one of what were called the Seven Modernizations of the Pinochet Dictatorship. 13.

Sources:

1. Senate votes in favor of pension bill https://chiletoday.cl/site/breaking-senate-votes-in-favor-of-pension-bill/

2. House approves withdrawal of pension funds in historic vote https://chiletoday.cl/site/lower-house-approves-withdrawal-of-pension-funds-in-historic-vote/

3. Retiro AFP 10%: ¿cuántas personas han solicitado la ayuda?https://chile.as.com/chile/2020/08/15/actualidad/1597518979_564567.html

4 . Americas Quartely, Solving Chile’s Pension Crisis.

5. Fundacion Sol Estudios Pensiones bajo el minimo http://www.fundacionsol.cl/estudios/pensiones-bajo-el-minimo-2020_/

6. No-AFP Arguments  http://www.nomasafp.cl/inicio/?page_id=8

7. Pensiones afp sufren fuerte caida d sus ganancias en la primera parte del año https://www.df.cl/noticias/mercados/pensiones/afp-sufren-fuerte-caida-de-sus-ganancias-en-la-primera-parte-del-ano/2020-08-13/173252.html

8. Piñera appoints new ministers of the interior, foreign affairs. defensa. social development and secretary general of the presidency and the goverment https://chilereports.cl/en/news/2020/07/29/president-pinera-appoints-new-ministers-of-the-interior-foreign-affairs-defense-social-development-and-minister-secretaries-general-of-the-presidency-and-the-government

9. Retiro AFP 10%: ¿cuántas personas han solicitado la ayuda?https://chile.as.com/chile/2020/08/15/actualidad/1597518979_564567.html

10. Percepcion de os Chilenos sobre sus situacion economica https://www.df.cl/noticias/economia-y-politica/pais/cadem-percepcion-de-los-chilenos-sobre-su-situacion-economica-pasa-a/2020-08-17/080217.html

11, Regulardo forma cargos contra afp modelo por dificultdes en retiro del 10 y contra habitat por carta que envioi a afiliados https://www.latercera.com/pulso/noticia/regulador-formula-cargos-contra-afp-modelo-por-dificultades-en-el-retiro-del-10-y-contra-habitat-por-carta-que-envio-a-afiliados/JPJ3CSJR65H7TAIQF2GGXSKTZE/

12. Superintendencia de pensiones aplica mano dura y formula cargo congra model y habitat https://laprensaaustral.cl/nacional/superintendencia-de-pensiones-aplica-mano-dura-y-formula-cargos-contra-afp-modelo-y-habitat/

13. Seven Moderiniations Fact and Fiction http://www2.facso.uchile.cl/sociologia/1060225/docs/chile/chilean.pdf

 

About morganworld982014

In recent years I’ve been living in South America and writing occasional articles that touch on human rights and social issues in Latin America. Recently, I’ve been examining how voters are changing the political balance in Latin America. Watch for upcoming election stories. One of the most important elections will be in Colombia this year. -- Ronald J. Morgan Morganworld98@yahoo.com
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