Chilean lawmakers help pensions withdrawal plan over first hurdle

However, the funds are extremely disliked locally and were a focus of widespread social protests last year because uneven contributions and high charges mean they often do not pay out pensions over the minimum wage. The government opposed the first withdrawal, arguing it would reduce already low average pension payouts, and shock the local stock, bond and exchange markets.

Chilean lawmakers on Tuesday passed by a large majority a bill allowing citizens to withdraw a second 10% tranche from their privately held pensions.

Members of the chamber of deputies approved the measure by 130 votes in favor, 18 against and two abstentions. The bill will be voted on by senators on a date to be determined. It follows an earlier bill that swept through congress and onto the statute books with cross-party support in July despite staunch opposition from center-right President Sebastian Pinera's government.

Chile's Pension Fund Administrators (AFP) system was introduced during the dictatorship of Augusto Pinochet and is seen as the cornerstone of the country's much-mimicked free market model, which helped it become one of Latin America's most prosperous economies. However, the funds are extremely disliked locally and were a focus of widespread social protests last year because uneven contributions and high charges mean they often do not pay out pensions over the minimum wage.

The government opposed the first withdrawal, arguing it would reduce already low average pension payouts, and shock the local stock, bond and exchange markets. By the start of October, 94% of pension holders under the AFP system, 9.75 million people, had withdrawn a total of US$16 billion, according to the pensions superintendent.

The influx of cash generated a spending bounce for retailers and lifted overall economic activity that was hit hard by the coronavirus shutdowns. Analysts said its impact on the bourse, bonds, and currency was less severe than expected. Finance minister Ignacio Briones has warned that a second withdrawal would render redundant a root and branch reform of the pension funds proposed by government.

The government has pledged USD$29 billion, close to 12% of GDP, for one of the most expansive packages in the region. It includes spot payments to mitigate the impact of COVID-19 and reactivate the economy. Opposition politicians who have championed the latest bill argue that it is insufficient and say Chileans need money to spend at Christmas.

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