The President of Chile, Gabriel Boricpresented Wednesday night a bill that eliminates the private Pension Fund Administrators (AFP), created in the dictatorship of Augusto Pinochetand replaces them with a new mixed system that increases the amount of pensions.
The AFPs, in this reform, end
In a televised message, Boric made one of his biggest campaign promises: abolish the system created in 1981 by the Pinochet dictatorship (1973-1990), a pioneer in the world in establishing the absolutely individual capitalization of the worker.
“The AFPs, in this reform, are over,” Boric said. According to the leftist president, through the new mixed system, the pensions of all people will be substantially improved. With the current system, 72% of pensions are less than the minimum wage (about 400 dollars), he pointed out.
The proposal of the Boric government, which would enter Congress next week, will maintain the individual savings pillarwhich currently averages 10.5% of the salary, and adds 6% by the employer, which until now had no participation.
The employer’s new contribution “will go to a social security fund that will improve pensions for everyone, but especially for women who are the most affected by the current system,” it was explained.
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The AFPs will be replaced by a Mixed Pension Systemwith a public investment manager and private actors.
The current pension system is in crisis, and nobody doubts that
“The current pension system is in crisis, and nobody doubts that. Today’s pensions are not enough for our fathers, mothers, grandfathers, grandmothers to sustain a decent life in their old age, no matter how hard they worked during their lives. Borik said.
Once the text is approved, the new mixed system would provide substantially higher pensions than the current ones. The president gave an example for a salary of 400,000 pesos (about 423 dollars). In the case of a man, the amount of retirement will increase 46% and 52% for women.
The new pension system proposed by the government will be financed with funds that it hopes to raise with a tax reform -pillar of Boric’s social reform program- that the president already sent to Congress last July and that seeks to capture 3.6% of the country’s total GDP.
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