Brazil & Southern Cone - July 2014 (ISSN 1741-4431)

Pension system reform unveiled: On 15 June President Bachelet unveiled an initiative to create a state-run pension fund to compete with the privatised Administradores de Fondos de Pensiones (AFPs) established under the military dictatorship led by Augusto Pinochet (1973-1990) (see sidebar).

Bachelet told reporters that the creation of the state-run administrator would make the market more competitive and guarantee coverage for those not considered attractive clientele for the AFPs; such as independent workers, those on lower incomes, or people that work in isolated areas of the country. She also told reporters that of a total of 9.6m workers eligible to save money with the private pensions, only 5m do so periodically.

Yet the initiative met with scepticism – not least from within Bachelet’s own Nueva Mayoría. The senate vice-president, Eugenio Tuma of the Partido por la PPD, complained that the reform was insufficient, while the president of the umbrella trade union organisation Central Unitaria de Trabajadores (CUT), Bárbara Figueroa, called for a complete transformation of the pensions system.

• Pension system

Pinochet’s 1980 pension reform replaced the pay-as-you-go state-run system with a system in which each worker’s savings were deposited and invested in pension fund managers (AFPs). Until 2008, there were two types of basic State help available for the most impoverished – a minimum pension guarantee for those who had made contributions for at least 20 years but had failed to accumulate the minimum amount necessary to retire (which covered 23% of the most impoverished), and a small non-contributory means-tested benefit worth half the minimum pension. In March 2008, under her first government (2006-2010), Bachelet replaced these two forms of State assistance with new ‘solidarity pensions’ (Pensiones Solidarias) for the poorest 60% of the population not covered by private pensions, while those who received low pensions from AFPs received a monthly top-up (Aporte Previsional Solidario).