SANTIAGO – The Chilean Congress approved on Thursday a constitutional reform bill that allows citizens to withdraw 10 percent of their pension funds to help mitigate the economic impact of the COVID-19 pandemic.
The initiative was approved in the third stage by the Chamber of Deputies and awaits final promulgation as law by Chilean President Sebastian Piñera, who opposed the reform.
However, the president confirmed the bill will be enacted.
The proposal, which has been promoted by the opposition, is generating crisis in the Chilean government since it was approved in favor by several government legislators, while the progressive benches called it “historic” as it could mean the beginning of a significant change in the country’s pension system.
The bill required 93 endorsements to be approved, but it was passed by a majority of 116 in favor, 28 against and five abstentions. During the first step of the project in the Chamber of Deputies, 13 government legislators gave their support, followed by five votes in the Senate.
The debate on this reform also aroused citizens who, according to the polls, mostly support it, and showed their approval in demonstrations by banging of pots and pans in the days leading up to the vote and with the honking of car horns to celebrate when the move was approved.
The initiative was launched with the social unrest that began in October 2019, with massive protests against inequality and calling for structural reforms to the pension model, among other things.
The aim of the reform is to enable citizens the possibility of withdrawing 10 percent of their pension funds to help offset difficulties caused by the epidemic, which in May sank economic activity by 15.3 percent, while the unemployment rate rose to 11.2 percent.
In recent days, the government presented new aid to the middle class, including a basic income of $600 and soft state credits, trying to convince parliamentarians to reject the withdrawal of 10 percent of pensions, but it failed to do so.
The government believes that allowing 10 percent of early retirement funds is regressive and will impoverish pensioners and hinder structural reform of the system in the future.
Chile’s pension model is based on mandatory individual savings, whereby each worker pays 10 percent of their gross salary each month into a personal fund managed by the so-called Pension Fund Administrator.
The law will enable citizens to withdraw a minimum of 35 Unit of Account (UF) – a non-physical exchangeable monetary unit used in Chile to adjust commercial, accounting and banking transactions in line with inflation – from their funds early for one time only, equivalent to approximately 1 million pesos (about $1,270).
The maximum amount will be equivalent to 150 UF, which is about 4.3 million pesos (about $5,500).