The empirical evidence presented in the previous chapter points to a reality of low pensions for civilians, large differences in benefits across pillars, large gender biases in pension levels, systemic redistribution of pension savings from wage earners to large economic conglomerates, export of nearly half of the pool pension savings, very high return rates for the AFPs and overall informational complexities for the affiliates.
Governments after the end of the Pinochet regime established a noncontributing, floor pension pillar but have, until the time of the writing of this book, refrained from challenging the AFP monopoly over near eleven millions of individual accounts and introducing an alternative pay-as-you-go pillar that could compete with (or replace) the dominant capitalization pillar. However, and in spite of the opposition of the Piñera II government and after strong popular pressure in August 2020, the Chilean parliament approved the withdrawal of 10 percent of pension funds (subject to bottom and upper limits) to cope with the adverse economic effects of covid-19 pandemic. A second withdrawal was also approved by December of 2020. The system seems to be unraveling.
As part of the reform attempts, two Presidential Advisory Commissions on Pension Reform, both headed by economists, were established: the Marcel Commission (2006– 8) and the Bravo Commission (2014– 15) convened domestic and foreign social security experts, consultants in pension issues and former AFP executives. However, no trade union members and Chilean critics of the capitalization system participated as permanent members of these commissions. In order to come up with a set of recommendations to government, they held hearings with a relatively broad spectrum of stakeholders, including critics of the system, but the drafting of policy recommendations was made only by commission members.
The 2008 Reforms under Bachelet I: Creation of a Basic Pension Pillar
The Pilar Solidario operates under a basic pension (Pension Básica Solidaria, PBS) and a supplementary pension subsidy (APS) for individuals receiving modest pensions; this basic pension pillar is funded out of general tax revenues. The Solidarity Pillar is a targeted pension support scheme; it is not a universal benefit system for all residents of a geographical area or for the whole country. To be entitled to receive the PBS/APS the potential beneficiary has to demonstrate shortage of incomes.