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  • The law allows the withdrawal of funds to members of the private pension system.

    The law allows the withdrawal of funds to members of the private pension system. | Photo: Twitter @Camara_cl

Published 23 July 2020
Opinion

The law now goes to right-wing President Sebastian Piñera for approval or a possible veto.  

The Chilean Congress definitively approved this Thursday the constitutional reform bill that allows citizens to withdraw 10% of their pension funds to face the economic complications that the coronavirus pandemic has caused.

The initiative was approved in the third step by the Chamber of Deputies (lower house), ending its parliamentary course and it is now ready for its eventual enactment as a law by the Chilean president, the right-wing Sebastián Piñera, who is against this reform and could veto it or appeal it to the Constitutional Court.

RELATED: 
Chile: Senate Has Approved the Partial Withdrawal of Pensions


 

The project, promoted by the opposition, is generating an intense crisis in the Chilean Government since it was approved thanks to the vote in favor of several government legislators. At the same time, from the progressive benches, it is described as "historic" because they understand that it may be the beginning of a profound change in the country's pension system.

The text required 93 votes and was approved with 116 votes in favor -among them 34 from the ruling party-, 28 against, and five abstentions.

Historical Approval With more than 2/3 of the votes we approved the funds withdrawal and we give a victory to the citizens! This is a triumph of the people, let us not forget. Now Piñera has to enact it and not veto or go to the Constitutional Tribunal.



The debate on this reform also agitated the public, which according to the polls, supported the bill overwhelmingly, and expressed it in various pot banging protests in the days leading up to the vote and with honking from cars to celebrate that the initiative was finally approved.

Also, the matter was addressed with the still-fresh memory of the so-called "social outbreak" that began in October 2019, with massive protests denouncing the country's inequality and demanding structural reforms in the pension model, among other things.


RELIEF AGAINST THE CRISIS CAUSED BY THE PANDEMIC

The objective of the reform is to give citizens the possibility of withdrawing 10% of their pension funds to help with the difficulties caused by the pandemic, which in May sank economic activity 15.3 % while raising the unemployment rate to 11.2%.

The Government in recent days presented new aid to the middle class, which includes a basic income of $600 and soft state credits, trying to convince parliamentarians to reject the withdrawal of 10% of pensions, but in vain.

Despite this, President Piñera said he did not feel that this is a "defeat" because he has fought "with conviction and force" for what he believed to be the best for Chile, although Congress has deemed otherwise.

The Government believes that allowing the early withdrawal of 10% is regressive, will impoverish pensioners, and will hinder a structural reform of the system in the future.

"Our conviction is that the middle class does not have to pay for this crisis with their pensions, but with contributions from the State and direct transfers," Interior Minister Gonzalo Blumel told reporters after learning the result of the vote.

Neither Piñera nor Blumel wanted to get ahead of the possibility of vetoing the project, an option that experts rule out as it could provoke a new wave of protests like last October.

In this sense, Blumel made a call "to recover a tone of less tension and greater collaboration," a message also addressed to the government coalition itself.


WITHDRAWAL OF SAVINGS

Chile's pension model is based on compulsory individual savings, through which each worker contributes 10% per month of their gross salary to a personal pension fund that they can have when they retire and which is managed by the so-called Administrators of Pension Funds (AFP). This system was imposed on Chileans, without consultation, by the dictatorship of Augusto Pinochet.

With the approved project, citizens will be able to withdraw from their funds in advance and for a single time due to the pandemic, a minimum amount of 35 Development Units (UF) - a changing monetary unit of non-physical existence that is used in Chile to adjust the commercial, accounting, and banking transactions according to inflation, which is equivalent to approximately one million pesos (about $ 1,270).

The maximum amount will be equivalent to 150 UF, which is around 4.3 million pesos (about $ 5,500)

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