26 Apr Third Withdrawal of Chilean Pension Funds
Last Friday, April 23th, Chilean Congress dispatched the project for the third withdrawal of pension funds.However, there is an obstacle in the way: the Constitutional Court, to which the Government resorted to block the initiative.
This Sunday, President Sebastián Piñera announced a project for the third withdrawal of 10% of pension funds, this in response to the proposal approved last week in Congress. This initiative will be sent to Congress on Monday, so that it can begin its discussion with great urgency.This project, unlike the one approved by the parliamentarians, considers a subsequent recovery of funds, in addition to a bonus for those who do not have a balance in their pension savings.
What the project announced by Piñera includes:
- Maximum withdrawal of 150 UF (about 4 million 400 thousand pesos) and minimum withdrawal of 35 UF (one million pesos).
- Delivery of a bonus of $200 thousand pesos for those who do not have pension savings left.
- Only contributors who belong to the 10% with the highest income will pay taxes.
- To restore funds, the monthly contribution charged to the employer will be increased by 1%.
- The State will grant another 1% to encourage the reintegration of funds, with a cap of 0.3 UF (around 8,800 pesos). This 1% will also be contributed to those who do not make withdrawals.
For pensioners with life annuity, an advance of up to 10% of their technical reserve will be granted, with a limit of 100 UF (2.9 million pesos approx.) This will be discounted, with a limit of 10% of their Life Income, until you find out the total amount of the advance.
For Previous two rounds of withdrawals, allowed in July and December 2020, reached US$36 bn
(or about 14 percent of GDP, and 18 percent of June 2020 pension assets) by February 2021.
1 Over 10 and 7 million people have used the firstand second withdrawal, respectively. The withdrawals overcompensated the loss of income due to the pandemic for people in all income quintiles (see text chart), but are expected to lower pension replacement rates while raising public pension costs ( by a net present value of about 3½ percent of 2020 GDP in staff calculations); they also often contributed more to an increase in savings (see text chart) than in spending, and the first one was regressive (as it was tax-exempt for all, see text table). About 3 million people exhausted their pension funds (or ¼ of pension system participants). The impact on financial markets from both withdrawals was muted, cushioned by the fast and ample reaction by the BCCh (which included a facility with cumulative purchases of US$8.5bn;)