Occupational pension schemes in Chile

Occupational pension schemes

What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

There are two main types of private pensions and retirement plans in Chile: agreed deposits and voluntary pension savings accounts (APVs). They both permit and encourage employees to save voluntarily, and so increase the balance accumulated in individual capitalisation accounts and so the amount of pension employees will receive. Alternatively, they open the possibility of early retirement. Similarly, these voluntary contributions can compensate for periods when no contributions were paid, due to unemployment or other causes.

Agreed deposits

An employee may agree with his or her employer to deposit amounts into his or her individual capitalisation account, in order to increase the capital to finance an early retirement pension or increase the amount of the pension.

The agreed sums may correspond to a fixed amount paid by the employer on a single occasion (ie, a bonus), a monthly percentage of the employee’s taxable wage or a fixed monthly amount. These amounts are independent to the state pension or mandatory contributions and do not constitute income for the employee up to an annual limit of 900 UF.

The employee is not allowed to withdraw the agreed deposit before he or she retires. However, Law No. 19,768 allows these resources to be withdrawn as part of freely usable surplus (funds the employee can withdraw freely as agreed deposit before retiring but will be subject to tax), but this involves payment of the corresponding global complementary tax.

APV

These voluntary pension savings accounts, also called ‘account two’, are independent to and complement individual capitalisation accounts and provide employees with an additional source of savings.

The employee can, personally or through his or her employer, make regular or occasional deposits. The APV does not constitute taxable income for the employee, up to a monthly limit of 50 UF.

Withdrawals can be made before the employee’s retirement, but require payment of the corresponding global complementary tax with a surcharge ranging between 3 per cent for lower incomes and 7 per cent for higher incomes.

What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

Employers may not exclude employees from making voluntary savings.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

See question 9.

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

An employee can personally, or through the employer, make deposits to an APV, even if he or she is working overseas on a permanent or temporary basis.

In the case of agreed deposits, employees working overseas and their employers can agree to keep the deposit in the employees’ individual capitalisation accounts, via an employment contract annex. As the system is voluntary, employees are eligible to join or remain in an APV if they are overseas.

Do employer and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

Employers and employees do not share the financing of private or voluntary pension plans: the plans are financed by voluntary contributions made by employees. However, the employer and employee can agree, via the execution of an employment contract annex, that the employer will contribute to the employee’s voluntary saving account.

An employee can voluntarily save in any of the following authorised institutions, which will be responsible for handling his or her funds:

• banks;
• mutual funds;
• AFPs;
• insurance companies;
• housing fund managers; and
• others.

These entities are supervised by the Securities and Insurance Supervisor, the Pension Fund Supervisor or the Bank Supervisor, as applicable.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

Not applicable.

What are customary levels of benefits provided to employees participating in private plans?

Generally, employees with high incomes agree with their employers to deposit amounts into their individual capitalisation account as agreed deposits for tax purposes.

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?

No, as it is a voluntary system.

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

Survivorship pensions are awarded to surviving beneficiaries (eg, a spouse, offspring or parents) on the death of the employee. If there are no beneficiaries, the pension’s balance goes to the deceased employee’s individual capitalisation account to augment his or her inheritance.

When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

In the case of private or voluntary pensions, employees can withdraw their APV at any time before they retire, but this involves payment of the corresponding global complementary tax with a surcharge ranging between 3 per cent for lower incomes and 7 per cent for higher incomes.

On the other hand, the employee is not allowed to withdraw the agreed deposit before he or she retires.

However, Law No. 19,768 allows these resources to be withdrawn as part of the freely usable surplus, but this involves payment of the corresponding global complementary tax.

In the case of state or public pensions, employees can retire at 65 years old for men or 60 years old for women. Nevertheless, it is not mandatory to request the funds from the pension system once these ages are reached. It is only the minimum age from which people are entitled to claim them. The law allows early retirement for public or state pensions, provided that the employee can obtain a pension that is equal to, or greater than, 50 per cent of his or her average taxable income for the last 10 working years, and equal to or greater than 110 per cent of the minimum pension guaranteed by the state.

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

See question 17.

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

No, as it is a voluntary system.

In what circumstances may members transfer their benefits to another pension scheme?

Members are free to transfer their voluntary savings to any authorised institution. However, members who transfer any funds from one account more than twice in one calendar year must pay an exit fee.

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

See question 12.

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

This is not possible under Chilean legislation as private pension plans are selected by individual employees, so the employers or the situation of the company’s workforce programme have no bearing on them. The employee chooses the institution that he or she wishes to join for private pension plans, and may change from one administrator to another whenever he or she thinks it advisable. (See question 20.)

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

Non-broad based plans are permitted and may be offered by the AFPs or by insurance companies. Through the agreed deposit plan, employers agree to make payments (such as bonuses) into employees’ individual capitalisation accounts, which are added to the mandatory pension contributions. These agreements are usually offered to workers in managerial positions. This type of investment has tax benefits for both parties.

Regarding APVs, members may pay in contributions of up to 50 UF per month. This contribution represents a tax benefit for the employee, because it is treated as tax-exempt income up to the maximum allowance. This plan also makes the resources more liquid, enabling these contributions to be withdrawn by the employee at any time in his or her working life, not only on retirement, by paying an additional rate on the corresponding global complementary tax, or withdrawn as freely usable surpluses, if applicable.

Voluntary social security savings can also prove useful in providing employees protection in case of unemployment.

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

This is not applicable in Chile as there is no specific regulation for broad-based and non-broad based plans.

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

There are no regulatory differences regarding retirement benefits in relation to unionised employees, because plans are voluntary for the employees, regardless of their position or union affiliation in the company.

However, the employer could agree to offer certain retirement benefits to unionised workers in their respective collective instruments, but this is not common practice.

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

There are no legal requirements applying specifically to trade-union-sponsored arrangements. (See question 25.)