Chilean presidential candidate Beatriz Sanchez suggested swapping the nation’s unpopular public-private pension plan with a new social security system in a press conference Thursday.
A journalist representing the country’s Frente Amplio bloc, Sanchez has proposed a system that would collect funds from the state, employers, and employees before redistributing them from a common pot. This would end the current system, which sees Chileans put their savings into one of six private funds, known as AFPs, which manage $160 billion in assets. Her proposal would also allow for workers to invest in AFPs if they chose to. Minimum monthly checks would be linked to the country’s minimum wage, with a $4,100 cap. Employee contributions would also be lowered by 1% while employer contributions would increase by 5%.
“We need to ensure dignified pensions for Chile, and this requires structural, profound, and gradual changes,” Sanchez.
Introduced under Augusto Pinochet’s dictatorship in the 1980s, Chile’s privatized pension system was initially praised as an ideal model among economists. However, it has been under fire in recent years for various reasons, which include insufficient payouts. In a 2016 interview with the Financial Times, David Blake, pensions expert for the Cass Business School in London, said that the Chilean scheme seemed like a success in the beginning, but industry-extracted charges started to pull back the curtain.
Blake also warned that the system’s failure could trigger a global collapse, saying that the World Bank was “terrified that the Chilean model will fail.”
Earlier this month, Chile President Michelle Bachelet sent a bill to Congress that would increase pension payroll contributions by 5%, boosting them to 15%, with employees paying for the spike. Due to her coalition’s extreme division in recent months, it’s unclear as to whether the bill will pass before March 2018, when Bachelet’s term ends.
Sanchez’ competitors, former President Sebastian Pinera and Alejandro Guillier, have also proposed changes to the pension system. Pinera’s are considered more modest, while Guillier’s concept mirrors Bachelet’s.