Chile’s Senate on Wednesday approved a bill that allows citizens to withdraw up to 10 percent from their pension funds to mitigate the economic hardships caused by the COVID-19 pandemic.
The bill was approved in the Senate by a 29-13 vote with one abstention. It will now return to the lower Chamber of Deputies, which already gave a green light to its passing.
Pension funds in Chile are administered by privatized pension funds, known as AFPs. This private pension system, introduced under the dictatorship of Augusto Pinochet (1973-1990), was once heralded as a model of privatization that was imitated by other countries.
Yet, Chile’s retiring population, who were once promised to receive over 70 percent of their final salaries, often failed to meet the strict requirements for paying into the scheme. AFPs are a widely unpopular system and have been one of the focal points of October 2019’s anti-government protests.
With the approval of the new bill, 10.9 million people will be able to withdraw up to 4.3 million pesos ($5,400) from their pension funds.
Opposition and Support
The bill was opposed by President Sebastian Piñera, who tried to resist its passing by announcing a package of measures to support the middle classes, including a $630 bonus.
Yet, a number of legislators from the president’s own conservative coalition, aware that their political futures depend on the support of the middle classes, voted in favor of the bill.
“Today I vote for the real Chile, for the people who suffer the apathy of politicians and of a State that has been looking to the side for more than 30 years,” said Senator Manuel José Ossandón.
Chile’s senate has passed the bill that will allow people to withdraw 10% of their pension funds to help see them through the crisis.
Cue blaring horns and more pan-bashing in Santiago – it’s been quite a noisy evening https://t.co/yVM0NFl4Yr
— John Bartlett (@jwbartlett92) July 23, 2020
When voting in favor, Senator Felipe Harboe Senador notably said: “We got to this point because of the denial of the many who spent the last decades opposed to any change to the pension system. Mr. President, do not continue to be the driver of this denial, go back to governing and assume the leadership of the country with a sense of urgency and opportunity (…) put ideological dogmatisms aside.”
Some government ministers voiced against the passing of the bill, highlighting that it would further reduce Chilean’s already inadequate pensions.
Minister Claudio Alvarado indicated that “[The government] would have liked to have a much more profound debate, with more reflection, to build amongst all of us a proper public policy. What we are doing today is not the best way of legislating.”
Minister of Finance Ignacio Briones added: “There is a huge challenge ahead of us and we must respect ourselves and the rules of the games, not only in terms of the requirements of form but also in the sense and reasonability of the presidential regime we have.”
The passing of the bill means more than the approval of an emergency measure. As the first major reform of the private pension fund system, it carries a strong symbolic significance.
In October 2019, a metro fare increase of $0.04 unleashed the fury of millions of Chilean citizens who took to the streets to protest against high livings costs and systematic inequality.
President Piñera announced a state of emergency sending the military into the streets as clashes became violent. However, the president’s efforts to quell the unrest failed, and demonstrations grew in size and intensity.
October 25 witnessed the biggest gathering in Chilean history. One million people manifested peacefully around Santiago’s Plaza Italia, announcing “Chile Despertó” (Chile Woke Up). The removal of the AFPs was one of the protesters’ central demands.
— Mónica Rincón González (@tv_monica) October 25, 2019
Last week, Chilean’s welcomed the initial approval of the new bill, banging pots and pans in celebration.
However, as the president gives signs of vetoing the bill or sending it to the Constitutional Court for review, both the bill’s supporters and critics fear the risk of further demonstrations.