Chile to reform pensions system
The Chilean government is poised to back a fundamental reform of the country’s celebrated private pensions system so that domestic banks can administer their own pension funds for the first time.
In July, a government-appointed commission investigating pensions reform recommended allowing domestic banks to enter the sector, to increase competition and reduce the commission that pensions providers charge the public for running a private pension.
Currently, it is compulsory for those in salaried employment to contribute 10% of their earnings to one of six private pension funds. Providers charge a commission of 25% on the contributions.
In total, Chile has the equivalent of $80 billion of private pensions under management (compared with just $30 billion in its much more populous neighbour, Argentina).
Andras Uthoff, head of social development at think-tank the Economic Commission for Latin America (Eclac) and a member of the advisory commission on pensions, says: “The main reason for allowing domestic banks to come into the market is to reduce the commission levels, which we feel are too high. We did not suggest an appropriate level but recommended more players enter the market.”
One of the anomalies of the pensions system is that foreign banks are already allowed to have a banking arm in Chile and a separate affiliate with a private pensions fund.
Foreign banks own three of the six pensions funds providers: Provida by BBVA, Bansander by Banco Santander, and Santa Maria by ING.