On August 1, 2025, employers in Chile will be required to make mandatory contributions to the country’s new mixed pension system, as established under Law No. 21.735. This marks the initial phase of broader pension reform, which includes increasing the mandatory employer contribution by 1 percent of employees’ taxable income.
We provide a concise overview of the changes.
1. Initial increase in employer contributions
Starting August 1, 2025, employers must contribute an additional 1 percent of employees’ taxable income, which is added to the regular employer contributions on behalf of employees. This 1 percent is distributed as 0.1 percent to the individual capitalization account of each employee, and 0.9 percent to the Autonomous Pension Protection Fund (APPF).
2. New mixed pension system and Social Security Pension Insurance
Law No. 21.735 establishes a mixed pension system composed of individual capitalization accounts. This is administered by the Pension Fund Administrators (AFP, for its Spanish translation) and the Social Security Pension Insurance (SSPI), and is financed by employer contributions. The law is intended to strengthen social protection, improve pensions, and reduce disparities in gender pay gaps.
- Employer contribution: To finance the system, the reform establishes a mandatory employer contribution, starting at 1 percent in August 2025 and gradually increasing to 8.5 percent, subject to the applicable social security cap. While the final implementation date may vary based on legal adjustments or external evaluations, full implementation is anticipated by 2033.
Next steps for implementation of the Pension Reform
- Social Security Pension Insurance (SSPI): Starting in January 2026, the SSPI will provide benefits with contributory elements and gender gap compensation. These include (i) benefits based on years of contribution, (ii) contributions with protected return, (iii) compensation for differences in life expectancy, and (iv) the payment of the Disability and Survivorship Insurance contribution (1.5 percent of remuneration), which will be administered by the SSPI beginning in August 2026.
- Autonomous Pension Protection Fund and its administration: The APPF will be an independently managed fund with its own assets, designed to finance SSPI benefits. It is subject to standards of governance, transparency, and oversight. According to Law No. 21.735, the APPF's administrator must (i) bid for investment management, (ii) ensure financial sustainability, and (iii) conduct triennial actuarial studies to assess the adequacy of resources and propose adjustments, if necessary. The administrator's board of directors has the authority to modify benefit parameters, approve investment policies, and supervise APPF management and transparency.
- Modifications to the private pension funds administrator's system: Law No. 21.735 introduces substantial changes to the traditional Chilean pension fund management system, replacing the multifund structure with generational funds. It also mandates the bidding of 10 percent of the affiliates' portfolios every 24 months, and requires the centralization of a pension collection system for both AFPs and the APPF, among other provisions.
- Improvements to the Universal Guaranteed Pension and coordination with other benefits: The law expands the Universal Guaranteed Pension (UGP) base pension concept to incorporate the new SSPI benefits and contributions with protected yield. Implementation dates vary by beneficiary type. A mechanism for periodic review of UGP adequacy will be established, involving the Pension Advisory Council and the Autonomous Fiscal Council.
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