CONSTITUTIONAL REFORM PROJECT ESTABLISHING A SOLIDARITY PENSION SYSTEM
Andres Veszprémy S.
A group of Senators presented a motion to reform the Constitution, repealing the Private Pension System, replacing it with what they call “Solidarity Pension System”. Although the project establishes that the funds of the individual capitalization accounts, administered by the Pension Fund Administrators, at the date of the entry into force of the reform, will remain the property of the workers, it is not clear that this will really happen in the future. Nationalization of the Pension Funds?
On May 13 of this year, the Senators, Messrs. Navarro, Órdenes, Provoste, De Urresti and Latorre, presented a constitutional reform project that repeals the Private Pension System and creates a Solidarity Pension System.
This analysis will not affect the political foundation of the parliamentary motion, nor is it intended to be an apology for the pension fund administrators or the Private Pension System. The purpose of this report is only to analyze the project from a legal perspective.
It should be noted that this project contains a single article, divided into four points, introducing, in the last one, a special chapter in the Constitution, related to the Pension System. When reviewing the wording of the aforementioned chapter, it is possible to notice numerous errors in the quotes made in them. For example, article 151 refers to articles 133, 134, 135 and 136 of said chapter. However, the chapter begins with Article 144. Like this example, there are a few more.
In the first place, it is proposed to constitutionally implement the state administration of the pension system. Currently, our Constitution states in its Article 19 N°18 the right to social security, establishing, as appropriate, that the State must guarantee access to all inhabitants to enjoy uniform basic benefits, whether they are granted through public or private institutions. In other words, our Constitution does not rule on who can administer the pension system, leaving this point to what is established by a qualified quorum.
For practical purposes, it should be noted that, in the terms in which the right to social security is currently established in our Fundamental Charter, nothing prevents a qualified quorum from repealing the private administration of the pension system and creating a solidarity pensions system in charge of a state entity or give rise to a mixed system in which the State and private fund managers cohabit.
Moreover, the reform project introduces amendments regarding those who have a legal initiative on pensions. Currently, it is the exclusive initiative of the President of the Republic. The motion intends to include the National Congress in this matter.
Later, the reform project introduces a special chapter within the Constitution, referring to the Pension System. Within this chapter, matters that are more specific to law and not to a Constitution are regulated. Among other matters, we can state the following:
- Decree Law 3,500 is repealed. As previously indicated, it is sufficient that a qualified quorum determines the repeal of said legal body and replaces it with a new one.
- The procedure is established for receiving social security contributions, matters that are proper to the law.
- It introduces in the Constitution a series of terms that are not defined, such as “Universal Basic Pension”, “Minimum Guaranteed Salary”, “Minimum Guaranteed Pension”, “National Solidarity Pension Fund”, “Legal Technical Reserve” , “National Social Security”, among others.
- It allows current pension fund managers (“AFPs”) to manage voluntary pension savings.
However, the project establishes that the funds of the individual capitalization accounts, administered by the AFPs, as of the effective date of “this law”, will continue to be owned by the workers, and must be transferred to the state entity that is created to administer the Solidarity Pension System, an entity that will grant each worker a certificate of Accumulated Individual Savings and Capitalization Balance, through a Notional Booklet that will record their updated balance. At the date of transfer of the funds of the contributor, a certificate called “Social Security Solidarity National Recognition Bond” will be issued, the amount of which will be subject to a guaranteed return of two percent per year. In this regard, the following comments and observations should be made:
- The rule only indicates that the funds of the individual accounts will be transferred to the public entity, but does not indicate to which account or fund or how these resources will be managed. In effect, by regulating the public entity, called the “Social Security Institute of Chile” (“ISSCH”), it establishes that it will be in charge of collecting and managing the contributions made to the Solidarity Pension Fund and the Technical Legal Reserve Fund of Pensions.
- The proposed regulation only regulates the investments that the ISSCH can make with the resources of the Legal Technical Reserve Fund for Pensions, establishing that they must be invested in public works, qualified by the Ministries that are individualized there, before a three-year proposal by the ISSCH. Within the body of the reform proposal, it is indicated as one of the measures to be implemented, the creation of the unit or entity in charge of managing the investments of the public pension system, without going into more details and without subsequently make any reference in the proposed articles.
- Within the foundations of the parliamentary motion, expressions such as “renationalisation of the pension system” are used. As indicated in the body of the reform project and, especially, bearing in mind the expressions used, such as those indicated above, even though the balances of the current individual capitalization funds will continue to belong to the workers, the question remains of the actual application about it in the future. We can only recall experiences from the 60s and early 70s of the last century. Likewise, there are the experiences of other nations, such as Argentina.
Finally, it should be noted that, given the wording of the proposed regulation, in which, except for the Legal Technical Reserve Fund for Pensions, nothing is said regarding the investment regulations of these Funds, there is a high risk that the resources collected for social security are invested with a political and not a technical criterion. The drafting of the constitutional reform project is not related to the regulation established in Decree Law 3,500, a law that contains an extensive, detailed and very rigorous regulation regarding the investments that can be made with the resources of the Pension Funds.