(Bloomberg) -- Chile’s lower house Finance Committee backed President Gabriel Boric’s plan to overhaul the nation’s privately-run pension system, setting up a crucial floor vote on the flagship plan later this week.
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In line-by-line votes that concluded Monday, the committee approved the legislation with many tallies falling along coalition lines. Debate and then voting on the lower house floor are expected to start as soon as Tuesday.
Finance Minister Mario Marcel said he expects that deputies will approve the bill as two previous attempts to change the system failed to pass Congress. “We are voting on a reform that Chileans have been awaiting for more than 10 years,” Marcel told reporters Monday. “To keep waiting on this issue is inconceivable.”
Pension reform, one of Boric’s marquee policy proposals, is now gaining momentum after languishing in Congress for over a year. The legislation seeks to boost retirement payouts that often fall below the poverty line, addressing a driver of the wave of social unrest starting in late 2019. Meanwhile, AFPs are crucial for investors because they represent the bedrock of the Chile’s capital markets with their pool of $180 billion in assets under management.
Read more: Chile’s Revamp of Private Pensions System Clears First Hurdle
The bill’s eventual approval on the lower house floor and then in the Senate remains uncertain given political fragmentation. While the largest opposition parties have already said they will reject the reform, in recent days the government has negotiated for support from smaller swing parties.
Main points of proposed pension reform:
Replaces current pension fund managers, known as AFPs, with private investment managers and also a government-run alternative
Creates a separate entity in charge of both collecting savings and making payouts to retirees
Raises state-paid minimum guaranteed pension to 250,000 pesos ($275) per month
Obligates employers to contribute 6% of workers’ salaries to retirement savings, with roughly half going to people’s individual accounts and the rest going to a collective pension fund
(Updates with quote from Finance Minister in third paragraph.)
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