Individual Capitalization Account
The main characteristics of the New Pension System, which came into being through Decree Law Nº 3,500, are the Individual Capitalization of members’ funds and the private management of such funds by institutions known as Pension Fund Administrators (AFPs), whose sole purpose is to manage a Pension Fund and provide the benefits indicated in the Law.
In order to finance the benefits of the System (pensions, death benefits, surpluses and inheritance), the member pays certain contributions into a Pension Fund Administrator. These contributions are managed by the AFP and credited to the Individual Capitalization Account of the member concerned.

What is the Individual Capitalization Account?
It is a register, created in the name of each member, by the AFP to which he/she belongs. All movements carried out in the Pension Fund with regard to a given member are recorded in it, for example:

• Mandatory contribution; Voluntary contribution; Additional Contribution; Recognition Bond and Supplement, where appropriate; Additional Payment; Transfers from the Voluntary Savings Account which the member may decide to make when he/she retires.
• Commissions charged by the AFP; pension payments under the Programmed Withdrawal or Temporary Income options; payments to Insurance Companies for Life Annuity premiums; payments of freely-usable surpluses; death benefit payments and inheritance payments.

How can a member find out about the state of his Individual Account?
The AFPs are legally obliged to send each member a statement of his/her account every four months. This is called the “Summarized Four-monthly Statement” and shows the movements for the previous four months. In addition to this, the member may ask the AFP to which he/she belongs for a “Complete Statement” at any time, which will show all the movements for the period requested, regardless of the Administrator into which the contributions were paid.

What is the point of reading the Individual Account statement carefully?
Since social security contributions are paid at the worker’s expense and are deducted from his/her wages, it is very important to check whether they have been entered in his/her account. If they do not appear, this may be due to the following:

• They were declared but not paid by the employer, in which case they appear as “Declaration without payment”. The AFP will collect accordingly.
• They were not declared or paid by the employer, but were deducted from the worker’s wage. In this case they do not appear as paid. In this situation, the member should approach his/her AFP to clarify the situation and facilitate collection.

The yield of the Individual Capitalization Account
All the social security contributions paid by members of an AFP make up the Pension Fund, which the AFP has to manage and invest in the most appropriate way.
From the very moment that the AFP receives the contributions from its members, the money is invested in a range of instruments, duly authorized by the Law in order to obtain an appropriate yield with security. The yield obtained by the Fund is distributed between all the Individual Capitalization Accounts belonging to the members, thus adding to each worker’s social security savings.
In order to achieve a better distribution of the yield between the Individual Capitalization Accounts, the total amount of the Fund is expressed in units. Each member owns a certain number of units, depending on the amount of capital accumulated in his/her Account, and he/she receives information about this every four months, by way of the four-monthly statement. In this way, the yield obtained by the Fund increases the value of the unit and it is distributed among the members in a fair and transparent manner.

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Voluntary Savings Account
This account is independent of the Individual Capitalization Account. The member chooses to deposit money in it on a totally voluntary basis, and its purpose is to enable him/her to save, make a profit and have free access to such savings and profits.
All the deposits made directly by the worker or through his/her employer are paid into this account. In the former case, the worker goes to the AFP office, or to an office with which there is a collection agreement, and makes the deposit on any day of the month. In the latter case, the member signs a “Deduction Authorization” in the AFP to which he/she belongs, and the employer is informed by the AFP so that he/she can deduct the appropriate amount.
The contribution to the voluntary savings account is paid by the employer on the same day as he/she pays the mandatory contribution and, in the event of the contribution not being paid, the AFP is bound to collect as if it were indeed a mandatory contribution.
The deposits will be converted into their equivalent in Pension Fund units, obtaining the same yield as the Fund. The value of the unit on the third working day following the date on which the deposit is collected is used for converting it into units.
The member may make up to 4 withdrawals in one calendar year from his/her Voluntary Savings Account. To do so, he/she must present his/her ID Card and the Differentiated Account Book provided by the AFP when the Voluntary Savings Account is opened. The AFPs are authorized to charge commissions for each withdrawal, except where the amount withdrawn is to be paid into the individual capitalization account when the member begins retires.
The real yield perceived by members in the Voluntary Savings Accounts is subject to the general tax regime described in the Law on Income Tax.

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Compensation Savings Account

Employed workers in general:

As from 1st December 1991 (Law Nº 19,010) workers covered by the Labour Code who have been in a company for over six years may agree with the employer, as from the seventh year of their contractual relationship, to replace legal compensation with an “unconditional” compensation, in other words, one which is payable when the work contract terminates, whatever the reason may be. This is applicable only for the period of time subsequent to the first six years of service and up to the end of the eleventh year of the contractual relationship.
Workers with a valid contract on the 1st December 1991, who were taken on before 14th August 1981, shall be entitled to agree upon replacement compensation with their employer, with no limit on the number of years.
Both members of the New System and those belonging to the old scheme can apply for the benefit described above. In both cases, the money is paid into an AFP which takes responsibility for collecting and managing the funds.
The employer has to finance this compensation at his/her own expense by a payment of at least 4.11% of the worker’s monthly taxable income, with a maximum limit of 90 UF.
To formalize the agreement between worker and employer, both must sign the form “Replacement Compensation Agreement” issued by the AFP to which the worker belongs, or in which he/she wishes the contributions to be paid, depending on whether the person concerned is a member of the New System or the Old.
The replacement compensation agreement is irrevocable and only ceases with the termination of the contractual relationship or when the end of the eleventh year is reached since that relationship began, except in the case of workers whose contractual relationship began prior to the 14th August 1981.
The Replacement Compensation Account is personal and totally independent of the Individual Capitalization Account and Voluntary Savings Account.
The worker may withdraw the funds from the Compensation Account, including its yield, by presenting proof that the contractual relationship has ended. In the case of a person who works for more than one employer, he/she may only withdraw the funds accumulated with the employer with whom the contractual relationship has ended.
The withdrawal of these funds is not taxable.
In the case of a worker’s death, his/her spouse, legitimate or natural offspring, or legitimate or natural parents, (any of the above in order of precedence), may directly withdraw an equivalent of up to 5 annual tax units (UTA) from his/her account. The remainder, if such exists, shall count as inheritance.

Domestic workers

As from 1st January 1991, Law Nº 19,010 stipulated an unconditional compensation for domestic workers whose contract is terminated, for whatever reason.
This provision is applicable both for those who are members of an AFP and for those belonging to the old social security scheme.
Under the terms of this provision, employers are obliged to pay a compensation contribution at their own expense, on the worker’s behalf, for a maximum of 11 years.
The amount of the contribution shall be 4.11% of the worker’s monthly taxable income with a limit of 60 U.F.
The following are considered to be domestic workers:

• Natural persons who dedicate themselves continuously, full or part-time, to the service of one or more natural persons or a family, doing cleaning and support work appropriate to, and inherent in running a home.
• Natural persons who carry out work similar to that described above in welfare institutions designed to care for people with special protection or assistance needs, providing them with the benefits normally found in a home.
• Private chauffeurs
• Workers assigned to this category by the Department of Work.

Only one Compensation Savings Account may be held, even where there may be more than one employer and each employer is paying the contribution that corresponds to him/her. To open such an account, the worker and employer must together sign the form: “Mandatory Compensation Account: Domestic Worker” with the AFP to which he/she belongs or in which he/she decides to open one if he/she belongs to the old system.
Contributions to this account must be paid in by the employer to the A.F.P. in which the account is held by the 10th of the month following that in which the wage accrues, or on the next working day following. Readjustments and interest may be charged if they are paid late.
The worker may withdraw the funds from the Compensation Savings Account, including the yield, on presenting proof that the contractual relationship has ended. To do this, the form “Withdrawal of Compensation Savings” must be signed in the AFP concerned, accompanied by the respective release document, ratified by the Inspector of Work, a Notary Public, an Official of the Registry Office or the Municipal Secretary of the borough concerned. The termination of the contractual relationship may also be proven by other means, such as a memorandum of settlement or agreement, an executed legal sentence, etc.
In the case of working for more than one employer, the person may only withdraw the funds accumulated with the employer with whom the contractual relationship has terminated. In the case of a worker’s death, his/her spouse, legitimate or natural offspring, or legitimate or natural parents, (any of the above in order of precedence) may directly withdraw an equivalent of up to 5 annual tax units (UTA) from his/her account. The remainder, if such exists, will constitute inheritance.

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