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Chile considers giving pension savers more power in investment process

Chile considers giving pension savers more power in investment process

Chile's government has rolled out a proposal that could see pension savers have more influence in the AFP investment process, as part of its long-awaited pension reforms that could also see the launch of a state-run system.

President Michelle Bachelet announced the plans, which have been about a year in the making, in a public speech Thursday. The project still needs the green light of Chile's congress but there's no set timeline for approval. 

Speaking at the launch of the proposal, Bachelet said: ‘We propose that savers choose a representative for the AFPs’ investment and conflict of interest committee. Also that the Comisión de Usuarios, which we will strengthen, have decisive influence in the naming of board members of the firms in which the pension funds invest in.’

The Comisión de Usuarios is a government entity that gathers input from AFP users through meetings with employers, workers and experts, according to its website.

Andrés Santa Cruz, the president of the AFPs' trade organization, criticized the idea in an interview with Chilean media outlet Diario Financiero, saying that investment decisions should be made by 'trained people.'

Bachelet also pitched a plan to increase pension contributions by 5%, with employers paying for the increase. Under the current framework, workers must contribute 10% of their taxable earnings toward retirement.

In addition, the government proposed creating a state-run entity to run the additional 5% contribution, a drastic departure from the private-only system that has been in place since the 1980s.

Bachelet’s proposal also seeks to modify the bidding process through which the government decides which of Chile’s six AFPs would manage the pensions of new affiliates.

The state has so far granted the contract to the pension fund that charges savers the lowest fee for running their money but it's now seeking to factor in relative returns and quality standards into the process, according to Bachelet’s speech.

Bachelet's proposal didn't address a plan to create a benchmark for the AFPs, an idea her government has floated in the past and that the pension funds have opposed.

Chile's six pension funds are still awaiting the final framework of another reform, which is expected to make wide-ranging changes to their investment guidelines to facilitate investment in alternatives.

The AFPs have recently criticized a draft of the measure saying it wouldn't trigger a 'relevant' increase in investment into that asset class.

They had already stopped putting money into alternatives as they grappled with uncertainty about the upcoming changes, which are set to take effect in November.

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