Chile's Private Pension System

How Chile replaced state pensions with private individual accounts run by AFPs in 1981, why many retirees got low pensions, and the reforms that followed.

In 1981, Chile created a private pension system.

How it works

Workers save about 10% of wages in individual accounts.
Private AFPs (pension fund administrators) invest the money.

Global influence

Many countries copied Chile’s model in the 1990s.

Problems

Many retirees got low pensions, especially women and informal workers with gaps in contributions.
Fees reduced returns.

Reforms

2008: a solidarity pension for poorer retirees.
2022: a universal guaranteed pension (PGU).
2025: a reform adding employer contributions.

Lesson

Private accounts need high contributions and coverage to deliver adequate pensions.

The low pension

A woman who worked informally for years retires with a small account balance, receiving far less than she expected.

Thinking private accounts always give better pensions

Low contributions lead to low pensions.

Key takeaways

Chile created private pension accounts in 1981.
AFPs manage the funds.
Many pensions were low.
Reforms added public and employer support.