CHILE: NEW SOCIAL SECURITY PENSION SYSTEM AND SOCIAL SECURITY REGULATIONS AMENDMENT.
On March 26th, the Chilean Official Gazette published Law No. 21,735, which creates a new social security pensions system, improves the universal guaranteed pension – and amends the applicable Laws and Regulations, accordingly. The following key provisions may be highlighted:
Employers’ Contributions to the Pensions System
A contribution of 8.5% of the taxable wages/remunerations of employees affiliated with the pension system established by Decree Law No. 3,500 of 1980 (as amended) is mandated. A voluntary contribution is also established for self-employed persons or liberal professionals of No. 2 of Article 42 of the Income Tax Law, as well as for self-employed individuals who do not receive income under the aforementioned No. 2 of Article 21 and are not dependent employees within the same given month.
From these contributions, the following allocations are made:
- 6% of the taxable wage/remunerations is allocated to their individual capitalization accounts. This percentage shall be reached gradually as thereby detailed,
- 1.5% of the taxable wage/remuneration is allocated to a protected profitability fund, contributing to the funding of the contribution years benefit) through the fund named Social Security Protection Autonomous Fund (“Fondo Autónomo de Protección Previsional”). This shall be integrated into the employees’ savings with applicable readjustments and interests. As of the first day of the month 241 the said percentage shall be decreased in 0.15% every 12 months until 0% is reached;
- 2.5% of the taxable wage/salary is allocated to the abovementioned Fund to cover compensation for life expectance differences and part of the additional contribution aimed at funding the disability and survival insurance.
For purposes of the above, the monthly wage/salary/remuneration shall be subject to a maximum taxable limit, as established by Article 16 of the Decree Law No. 3,500 of 1980.
For Income Tax purposes, the abovementioned contribution shall be considered as a pension benefit for the employee and be treated as an expense under number 6 of the 4th subsection of Article 31 of the Law.
The obligation of the employers to comply with this contributions ceases when the employee retires due to age or disability in terms of Decree Law No. 3,500 of 1980, or if the employee has opted for an exemption from this contribution in terms of Article 69 of the Decree-Law, or when the employee reaches 65 years of age – whichever occurs first.
Creation of the Social Security Pension
This Law creates the Social Security Pension aiming at financing benefits with contribution and supplementary elements concerning gender gaps.
This Social Security Pension will be financed with the employers’ contributions stated by literal b) of numeral1 and numeral 2 of Article 1 which will be deposited into the Social Security Protection Autonomous Fund.
Dependent employees with ongoing contracts or who initiate or resume labor activities as of the first day of the 5th month after the publication of this Law shall be subject to this Social Security Pension. The law clarifies that when an employee who is not currently subject to social security begins a labor relationship, they will automatically be incorporated into the system, and the employer will have the obligation to contribute to the pension system as described above.
The Social Security Pension contributions shall be those derived from the contributed years Benefit, the contribution with protected profitability, the compensation for life expectancy differences, and the benefits derived from disability and survival insurance – when applicable -.
The pension derived from this system will be considered a contributive income in terms of No. 1 of Article 42 of the Income Tax Law, and taxable for health.
Pensions Information System
This Law introduces Article 94ter to Decree Law No 3,500 of 1980, which establishes that the Pensions Superintendency shall administrate a Pensions Information System, aimed at providing information about the pensions rights and pensions status to the corresponding affiliated employees. This System shall also have a projected estimated pension for each affiliated, taking into account all the pensions that the employee is entitled to upon meeting all the relevant requirements.
Contributed Years Benefit
As a general rule, elderly and/or Disabled Pensioned of Decree Law No. 3,500 of 1980, aged 65 years or older, whose employers paid continuous or alternate contributions to the Social Security Protection Autonomous Fund, will be entitled to a monthly amount of up to 0.1 promotion unit per every 12 months contributed.
This benefit corresponds to a full-time period and shall be calculated proportionally in line with the time effectively worked, as assessed by the Pensions Superintendency.
Protected Profitability Contribution
This is a mechanism for the recognition and safeguard of the employees’ contributions to the pension system paid by their employers, which shall also count on a Governmental guarantee.
The contribution will trigger a non-transferable pension bond in favor of the affiliated employee, which shall accrue a real annual interest to be calculated by the Pensions Superintendency and shall also include a redemption date. The redemption consists of an exchange for a depreciable bond – and tradable in certain cases – and will be immune to seizure.
Life Expectancy Differences Compensation
Women with contributions paid in terms of point (iii) of the Employers’ Contributions to the Pensions System above, of 65 years onwards will be entitled to a monthly compensation to offset the greater life expectancy compared to men. This compensation is available provided that they receive an elderly or disabled pension arising from their mandatory contributions by both the employee and the employer under the individual capitalization granted in line with Decree Law No. 3,500 of 1980.