Chileans may retire early

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Cheers and applause erupted in the lower house of Congress when the proposal was adopted by 116 votes to 18 on Thursday. Many members of the government side supported the yes side and President Piñera later declared that he bowed to the majority and refrained from vetoing it.

A no could have led to a new outbreak of protests, similar to those that erupted at the end of last year, writes the news agency Reuters. Dissatisfaction with the pension system was one of the factors that made millions of people take to the streets in October.

Political scientist Christobal Bellolio compares the decision to Brexit – a symbolic blow to the establishment, to the advice of experts.

Warning from economists

Economists warn that advance withdrawals will affect pension savers in the longer term. On the one hand, the annual payments become even smaller than before when capital decreases. On the one hand, pension funds risk making large losses when they are forced to sell large assets in a short time in order to free up funds to pay out, which also reduces returns.

Proponents of the proposal, for their part, claim that the government’s alternative proposal for crisis support – a one-off support of just over SEK 5,000 and low-interest loans of just over SEK 17,000 – was insufficient and too bureaucratic.

Legacy from the dictatorship

The pension system is a legacy of the late 20th century military dictatorship and is based on its own mandatory savings in pension funds, completely without tax financing from the working population.

According to Bloomberg The system has contributed to large investments, which has strengthened growth and reduced poverty in the country. At the same time, the outcome is very uneven. 80 percent have less than 400 US dollars a month (about 3,600 kronor) and most who work part-time or in the informal sector are referred to very low basic pensions, if even that.

The corona crisis has hit Chile hard, which in a short time has surpassed the United States and Brazil in the number of deaths per 100,000 inhabitants. The country’s economy is expected to shrink by 6-7 percent this year.



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