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      Chile – Pension Reform and the New Pension Scheme

      GMS Flash Alert 2025-051 | 6 March 2025

      On January 29th, 2025, the Chilean National Congress approved pension reforms filed by the Government of President Gabriel Boric, after the Chilean National Congress, in the third constitutional procedure, approved it1. 

      This pension reform will now be reviewed by the Chilean Constitutional Court, and once this process is finalized, it is expected to will become effective in March of this year. 

      WHY THIS MATTERS

      The reform includes four structural changes:

      1.  The creation of a Pension Pillar that mitigates risks and manages a Social Pension Fund.
      2.  A permanent contribution from employers, distributing the financial burden equitably.
      3.  The opening of the industry to greater competition through competitive bidding; and
      4.  Reducing inequalities to correct gender gaps in the pension scheme.

      These changes will consolidate a mixed pension scheme that guarantees sustainability and greater equity in current and future pensions.

      More Details

      • The Social Pension Reform proposes the creation of a Social Pension Fund that will grant two benefits:

      i.  Benefit per contributed year and

      ii. Women's compensation for longer life expectancy.

      A new contribution of 7% of taxable income to be paid by the employer is also contemplated, which will be added to the 1,5% contributed by employers to the Disability and Survival Insurance (currently at 1,38%), so that employers will contribute a total of 8,5% (implemented gradually over 9 years) for the benefit of the employee.

      • This total of 8.5% will be distributed as follows:

      i.      4,5% for individual capitalization, with the objective of strengthening future pensions.

      ii.     4% will be managed by the Social Pension and will have the following composition:

      a.     2.5% will cover the contingencies Disability and Survival Insurance, and Women’s Compensation for longer life expectancy. 

      The characteristics of the benefits, the Women's compensation for longer life expectancy will result in a woman and a man retiring at age 65 with the same age, same balance, and same family group obtaining the same pension

      b.     1.5% will finance the benefit per contributed year, an instrument that will improve current pensions and will be of a transitory nature.

      This benefit will be available to women with at least 10 years of contributions, a threshold that will be maintained during the first decade of the benefit. After that, this access requirement will increase to 15 years of contributions. In the case of men, those with a minimum of 20 years of contributions will benefit.

      • Change in the mechanism that Pension Fund Administrators (AFP in Spanish) and pension funds operate. Currently, members can choose between different multi-funds (A, B, C, D and E) according to the level of risk they want to assume. With the reform, this system will be replaced by generational funds, where the investment will be automatically adjusted according to the age of the employee: young people will assume more risk to seek higher returns, while people close to retirement will have safer investments to avoid large fluctuations in their savings.
      • A bidding system will also be implemented to encourage competition among the AFPs. Every two years, 10% of the affiliates will be randomly reassigned to the AFP that charges the lowest commission, which could help reduce costs for employees.

      How is the Chilean pension scheme currently?

      The current social security legislation stablished that funds are contributed as follows:

      Employee Contributions:

      • 10% of contribution + a commission fee from the AFP of 0.58% up to 1.45% *
      • Unemployment Insurance: 0.6% **

      Employer Contributions:

      • Unemployment Insurance: 2.4% **
      • Labor Accidents and Professional Disease insurance: 0.93% *
      • Death and disability insurance: 1.38% *

      Total Employer contributions rate at 4,71%

      *Capped at USD 3,606

      **Capped at USD 5,417

      KPMG INSIGHTS

      Expatriate executives who are transferred to Chile and are required to make contributions to the Chilean pension scheme will begin to see these changes once the implementation of the reform begins. Accordingly, Chilean entities should see an increase in the cost of their employees' contributions due to the cost they will begin to assume.

      Disclaimer

      The information contained in this newsletter was submitted by the KPMG International member firm in Chile.

      GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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