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Chile � Publication of Pension Reform Law

GMS Flash Alert 2025-076 | April 11, 2025

On March 26, 2025, Law 21735,1 which reforms Chile’s pension scheme and creates new features in the country’s social security system, was published in the Official Gazette (Diario Oficial). ÌýThe law was promulgated by President Gabriel Boric after its approval by the National Congress in January. ÌýIt was also reviewed by the Constitutional Court (Tribunal Constitucional) and subjected to constitutional review by the Government Accountability Office (Contraloría General de la República).Ìý (For prior coverage, see GMS Flash Alert 2025-051, March 6, 2025.)

The reform includes four structural changes:

  1. The creation of a Pension Pillar that mitigates risks and manages a Social Pension Fund;
  2. A permanent contribution from employers, distributing the financial burden equitably;
  3. The opening of the industry to greater competition through competitive bidding; and
  4. Reducing inequalities to correct gender gaps in the pension scheme.

These changes will consolidate a mixed pension scheme that guarantees sustainability and greater equity in current and future pensions.2

WHY THIS MATTERS

The changes will impact employers, increasing their costs tied to labor and heightening their administrative burden.Ìý

The reform takes into account the increase in life expectancy, and addresses imbalances in the system with respect to women and will help improve their pensions.Ìý In general, retirees can expect a boost in their pensions.

More Details

  • The Autonomous Pension Protection Fund (“Fondo Autónomo de Protección Previsionalâ€� or “FAPPâ€� in Spanish) is created, which is backed by the government but will be managed by private-sector entities.
  • Starting in May 2025, Unemployment Insurance pension coverage will also be extended and will cover the pension contributions for those unemployed who claim the unemployment insurance charged to their individual account. ÌýPrior to the reform, this coverage was only given to those who used the Unemployment Insurance charged to the solidary funds.
  • A new contribution of 7% of an individual’s taxable income is to be paid by the employer.Ìý This will be added to the 1.5% contributed by employers to the Disability and Survival Insurance (currently at 1.38%), so that employers will contribute a total of 8.5% (phased in over 9 years) for the benefit of the employee.
  • This total of 8.5% will be distributed as follows:

i.ÌýÌýÌýÌýÌýÌý 4.5% for individual capitalization â€� managed by the existing Pension Fund Administrators (AFPs) â€� and with the objective of strengthening future pensions.

ii.ÌýÌýÌýÌýÌý 4% will be managed by the FAPP and will have the following composition:

a.ÌýÌýÌýÌý 2.5% will cover benefits under Disability and Survival Insurance, and Women’s Compensation for longer life expectancy.Ìý

One of the reform measures provides for women and men both retiring upon reaching the age of 65, entitled to the same balance, and the same family group obtaining the same pension.Ìý Before, the retirement age for women was 60.

b.ÌýÌýÌýÌý 1.5% will finance a benefit based on years of contributions and will improve current pensions. ÌýThis will be of a temporary nature.

This benefit will be available to women who have made at least 10 years of contributions, a threshold that will be maintained during the first decade of the benefit. ÌýAfter that, this access requirement will increase to 15 years of contributions. ÌýIn the case of men, those with a minimum of 20 years of contributions will benefit.

This 7% rise in employer contributions will begin gradually, starting with 1% of taxable income, starting in August 2025.

  • Starting in September 2025, the Guaranteed Universal Pension (“PGUâ€� in Spanish) will reach a maximum amount of CLP 250,000 for the first group of beneficiaries, who will be pensioners aged 82 or older.
  • In August 2027, the first public tender of pensionersâ€� accounts will be implemented to encourage competition among the AFPs. ÌýEvery two years, 10% of pensionersâ€� accounts will be randomly reassigned to the AFP that charges the lowest commission, which could help reduce costs for employees.
  • The reform implementation process is the responsibility of the ministries of Labor and Social Security and Finance.

ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø INSIGHTS

Expatriate executives who are transferred to the country and are required to make contributions to the Chilean pension scheme will begin to see these changes once the implementation of the reform begins. ÌýLikewise, the Chilean entities will begin to see an increase in their costs tied to the recent reforms.Ìý Affected parties should consult with their social security professionals now to determine how best to prepare for the changes and properly comply with the new rules.Ìý

FOOTNOTES:

1Ìý Ley 21735 on the website of the Biblioteca del Congreso National de Chile at: .

As published online in the Diario Oficial de la República de Chile: Ìý.

2Ìý Previsión Social, .

Contacts

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Angelo Adasme

Partner, Tax - IES

ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in Chile

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Gustavo Maldonado

Director

ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in Chile

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Juan Mery

Manager

ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in Chile

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