Potential new pension withdrawals threaten Chilean system

Chile’s pension system continued making headlines this week after a bill to authorize a fourth emergency withdrawal of 10 percent of funds made it through the committee stage, despite stern opposition from the President Sebastián Piñera administration. If approved, the bill would lead to a massive new outflow of funds from pension accounts totaling around USD 20 billion, adding selling pressure on Chile’s bond and stock market while also likely stoking inflation.

Crucially, a new round of withdrawals could be the final nail in the coffin for Chile’s private pension system, created during General Augusto Pinochet’s dictatorship and most commonly known as AFPs (Pension Fund Administrators). The system faced intense criticism during the 2019-2020 protests in the country, with many presidential candidates now promising to alter or replace it.

The withdrawals began in 2020 as a measure to offset the effects of the pandemic on the economy, with Chile’s families already burdened with large amounts of debt and were unwilling to take on more.

Economists responded by warning that early withdrawals could jeopardize the system’s sustainability, with around 40 percent of Chileans left with near-empty accounts after the first three withdrawal rounds. With no savings, those citizens would be forced to rely on the country’s solidarity system for their future pensions, which guarantees around USD 240 per month. 

This would in turn place an extra burden on the state’s coffers.

Government response

Reluctant to make any big changes to the AFP system, the Piñera administration has offered to extend an