A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
- https://expatpensionholland.nl/global-pillars-systems
- https://expatpensionholland.nl/global-investments-risks-0
- https://expatpensionholland.nl/global-social-security-coverage
For even more information about this topic feel free to visit the following external sites:
- https://www.oecd.org/en/publications/pensions-at-a-glance-2025-country-notes_8a53ef12-en/chile_99e9160c-en.html
- https://kpmg.com/xx/en/our-insights/gms-flash-alert/flash-alert-2025-051.html
B] The Issue
As EPH we have seen up close during a client project the impact of the pension situation in Chile and the required reform of their pension system. Time for an update on that process.
Pension reform in Chile, one of the most advanced retirement benefit markets in Latin America, is (finally) gathering pace. After the Chilean National Congress approved landmark pension reforms in January 2025, more detailed draft guidelines for their implementation are expected soon.
C] The Details
These moves could, over time, lead to a hefty surge in assets under management (AUM) as contributions build, potentially creating new business opportunities for investment managers and their service providers. Launched in the 1980s, Chile’s private pension system is currently based on a Pension Fund administrator (AFP) based approach where private companies offer (only) five risk-based funds to Chilean workers via a ‘multi-fund’ system.
Some of the biggest proposed changes ahead include: Plans to introduce a new series of over 10 so-called generational target date (life cycle) style funds with automatic risk reduction. Also to be offered by the AFPs, these funds will be designed to be easier to use, with more manageable risk profiles.
Chile will also see a substantial mandated increase in employer contributions to work-based pensions: a small 1.5% mandatory employer pension contribution introduced last year will gradually increase to 8.5% subject to the relevant social security cap.
D] Impact Of Reform
To maximize competition within the new rules, up to 10% of AFP affiliates will be put out to tender every two years in auctions the government hopes will lower costs for scheme members.
In January this year, a separate move saw a new pension supplement introduced for women aged 65 or older who are receiving a contributory old-age or disability pension to address perceived historic inequalities in the system. A development of which many other countries can take inspiration.
All these planned changes should give scheme members a better chance of higher returns depending on their risk appetite and a wider range of investment options. Latest available estimates suggest the migration from the existing multifunds to generational funds would mean mobilizing over US$50 bn given the relevant assets under management.
E] Market & Implementation
Among the Chilean investment structures of note, exchange traded funds (ETFs) continue to be important for Chilean Pension Funds, with their popularity spurring related growth in ETF platform partnerships.
The new reforms and evolving regulation and client requirements will help to create fresh opportunities for both asset managers and service providers that can support more complex fund structures and shifting local market expectations.
Managers of these funds tend to invest in ETFs, mutual funds and alternatives such as private equity and this trend towards alts continues to grow. Which requires automation and reporting transparency and new models that can support this growth in both the ETF and alternatives markets.
F] Finally
The Chilean pension sector is already highly competitive, with platform capabilities, local presence, service model, technology, and fee positioning all influencing asset manager evaluations of service providers. As the market continues to evolve, we are excited about the latest reforms, which are the most significant pension changes seen in the country since the early 2000s.
While we await the full impact of the pension fund reforms, asset managers continue to assess potential impacts to custody structures, operating models and oversight requirements driven by the potentially exciting changes ahead.
As EPH we hope and expect that the progress in Chile will act as an example and inspiration for other countries in the region. Which actually is needed all the more due to the increasing longevity!
(Sources: bbh/EPH)