Sistema de Capitalización Individual 
|
|
 |
|
||||||||||||||||
| Decree Law Nº 3,500 was published in November 1980, reforming the Social Security System then existing in the country and establishing a new system of pensions for Retirement, Disability and Survivorship sourced from individual capital. The main bases and characteristics of the Pension System are described below.
The Bases of the System The main aim of the Chilean Pension System set up by Decree Law Nº 3,500 in 1980 is to ensure a stable income for workers who have finished their working life, endeavouring to achieve an income that bears a close relationship with that received during their active life. The premises behind this System are: 1. Individual Capitalization:
a.) Guaranteed Benefits: In the first instance, so that the benefits granted by the System shall be seen to be fair, all members who fulfil certain basic requirements are entitled to receive a minimum pension, guaranteed by the State, even when they do not have a sufficient balance in their individual account. In the second instance, the AFPs are responsible each month for ensuring that the real yield of each Pension Fund that they are managing achieves a minimum level for the past thirty six months, which is related to the average yield for all the Pension Funds of the same type during the same period. If an Administrator fails to meet the minimum yield, once all other possibilities established in the law have been exhausted, the State will pay the missing compensation and will proceed to wind up the Administrator. In the third instance, where an Administrator suspends payments or is declared bankrupt, the State guarantees the following concepts: Additional Contributions in case of the disability or death of a non-pensioned member, contributions (1), disability pensions following a first decision, and the death benefit. In addition, in the case of suspension of payments or bankruptcy of an Insurance Company, the State guarantees life annuities up to 100% of the minimum pension and 75% of the excess over and above that, up to a limit of 45 UF per month (US$1,038 in March 2003) for each pensioner or beneficiary. b.) Supervisory Role and System’s Controlling Organization In the first place, in order to ensure that workers and their families can meet their needs in situations of old age, disability or the death of the head of household, employed workers are obliged to contribute ten percent of their wages and taxable income in an AFP. The natural counterpart to this obligation to contribute is the State’s commitment to safeguard the resources accumulated in the Pension Funds. In the second place, the state guarantees mentioned in the previous point involve the future use of government funds and it is therefore necessary to check the running of the Pension Funds so that guarantees are granted only when members lack the means to achieve the minimum pension, or for reasons of force majeure, and not because of inefficiency or malfunctioning on the part of the System or the AFP. Finally, in addition to the qualitative elements related with maintaining public confidence in the efficiency with which the Pension Funds are managed, it is of vital importance to the economic development of the country that the Pension Funds be kept as the source of a supply of resources for the main economic sectors. Within the System itself the State is represented by the Superintendency of Pension Fund Administrators (SAFP), this being the technical authority responsible for the oversight and control of the Pension Fund Administrators. It is an autonomous institution with its own net worth, financed with state funding. Its functions cover the financial, actuarial, legal and administrative areas and its relationship with the Government is through the Ministry of Labour and Social Security, by way of the Undersecretary of Social Security’s office.
|
| The Characteristics of the System 1. Legal Coverage
What is more, all people defined as workers may join the system, whether employed or self-employed, without any distinction being made as to the activity in which they are engaged or the employer for whom they work. On becoming an affiliated member of a Pension Fund Administrator, the worker is incorporated into the pension system even though he/she changes job, becomes unemployed or leaves the workforce. The category of “contributor” on the other hand identifies the member who is actually contributing each month on the basis of the wages earned the month before, except for those pensioners of the new System who continue their contributions.
a.) Types of Pensions The main benefit produced by the system consists of the pensions it grants, and there are three different types:
All members who fulfil the legal age requirement, i.e. 65 years of age for men and 60 for women, are entitled to receive a retirement pension. There is no other requirement for becoming a pensioner, such as the number of years in the social security system, and neither is it obligatory to retire when reaching the legal age. At the same time, the Law allows for early retirement, with an early retirement pension, provided that the member can: • Obtain a pension equal to or greater than 50% of the average taxable income of the last 10 years of work (2) and • Obtain a pension equal to or greater than 110% of the minimum pension guaranteed by the State, equivalent to US$102 for pensioners under 70 years of age (dollar as of March 2003). ii. Disability Pensions In addition to retirement pensions, there are also pensions for total or partial disability which are financed by the Administrators by taking out the disability and survivorship insurance. To do this they use the income from the additional contribution. Those entitled to this benefit are non-pensioned members who are below the legal retiring age and who have: • Sustained the loss of at least two-thirds of their ability to work (the right to a total disability pension) • Sustained a loss of ability to work which is over fifty percent and under two-thirds. It is important to mention that those members who are unemployed at the time when the accident occurs still retain the right to a disability and survivorship pension as long as, in the case of employees, the disability occurs within a period of twelve months from the last contribution, and the worker has contributed for at least six months in the year preceding the first month of unemployment. In the case of self-employed workers the conditions required are stricter. In addition to the above, the State also guarantees the payment of minimum pensions in this case. Specifically, if at the moment of retirement, or while already retired, the member cannot afford to cover the minimum pension then in force with his/her own resources, the State promises to finance the remainder, as long as the legal requirements are fulfilled. These are at least 20 years’ contributions in some Social Security System in the case of retirement pensions and 10 years in the case of disability or survivorship pensions. At the same time the regulations specify certain additional requirements for each of these cases. iii. Survivorship Pensions Survivorship pensions are awarded to surviving beneficiaries on the death of the member (spouse, offspring or parents, depending on the case). These are financed from the money saved by the deceased member, and the transfer of funds from the Insurance Company with which the AFP signed the corresponding contract. The percentage of pension for each of the beneficiaries, in relation to the pension concerned, is defined in the Law. b.) Pension Options Decree Law Nº 3,500 stipulates the existence of the following pension options which members can choose, each with its own method of funding and administration:
On retirement the worker keeps his/her Individual Capitalization Account in the Administrator to which he/she belongs, withdrawing annual amounts which are obtained by dividing the accumulated balance in the account (3) by the capital required (4). These annual amounts are divided into monthly instalments, are readjusted according to the rise in the cost of living and are recalculated every twelve months. With this kind of pension it is the AFP which manages the resources and the member who assumes the risks of longevity and reinvestment, while retaining the ownership of his/her funds. In addition to the above, under this system the member can change his/her decision with regard to the pension option at any time and take the Life Annuity alternative. ii. Life Annuity: Members may sign a contract with a Life Insurance Company (of their own choice) for the payment of their pension. The company commits itself to paying them a constant monthly income, in real terms, as long as they live, and to paying a survivorship pension to their beneficiaries. In this way, the member’s resources are transferred to the Life Insurance Company, which assumes both the financial risk and the risk of longevity on the part of the pensioner and his/her family group. Once the member has chosen this kind of pension and signed the contract, the decision is irrevocable, because the ownership of the resources is lost. iii. Temporary Income with Deferred Life Annuity: On deciding in favour of a Temporary Income, a contract is signed with a Life Insurance Company for the payment of a fixed monthly income, readjustable in UF (5), as from a date some time after the moment of retirement. Between the date on which this kind of pension is requested and the date on which the member begins to receive the life annuity, he/she receives a monthly pension financed with funds held specially for this purpose in his/her capitalization account by his AFP. In this way the member retains the ownership and assumes the financial risk of just that part of his/her fund that remains in the AFP, for an agreed period of his/her life, but does not assume the risk of longevity which has to be faced by the Insurance Company with which he/she has signed the life annuity contract, in addition to the financial risk during that period. With all these pension options, if the worker obtains a pension higher than 120% of the minimum pension guaranteed by the State and higher than 70% of his average monthly taxable wage for the previous ten years, he/she may make use of the freely-usable surplus. This means the sum of money remaining in the individual capitalization account after the calculation of the amount needed to obtain the pension has been made and this has been deducted from the accumulated balance, and, as the name suggests, it is available to the member to use for whatever he/she considers appropriate, if he/she so wishes.
• Inheritance: in the case of a pensioner who has decided in favour of programmed withdrawal or temporary income with deferred life annuity and is in the temporary income period: if he/she dies without leaving beneficiaries for a survivorship pension, the balance remaining in the member’s individual capitalization account will go to increase the total estate of the deceased, constituting inheritance. • Death Benefits: when the member dies, the person who presents proof that he/she has covered the costs of the funeral, whether or not there is any matrimonial or blood relationship with the deceased, is entitled to the death benefit. This consists of a withdrawal of 15 UF from the individual account concerned.
|
