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PreviRed is a pension fund and health insurance payment service provider. It supports the payment of social security contributions through the internet. PreviRed belongs to the 5 pension fund administrators: Capital, Cuprum, Habitat, Provida and PlanVital. The portal allows those who employ workers, both businesses and home helpers, and self-employed workers to make their payments in an easy, secure and free manner. The service was founded in 2001 and is complete free for employers and there is no cost involved.
Head office address:
Marchant Pereira 10
Piso 20, Providencia
Santiago, Chile
Phone number: +56 2 6544000
Website: www.previred.com
The Chilean Pension System
The Old Regime
In the 1920s, Chile implemented a social security system aimed at providing retirement income for the elderly as well as other social benefits. From the early years, different pension schemes geared to servicing different occupational groups coexisted. The differences between these schemes were not the result of a well designed social security policy, but rather of lobbying and interest groups pressures. By the 1970s, and as a result of this trend, there were very significant differences in the benefits received by the different groups of workers. Although by 1979 there were 32 pension funds, three of them were dominant in terms of both affiliates and contributions. A common feature of these funds was that they all operated under the pay-as-you-go system. Under this scheme, active contributors financed retirement payments to pensioners. It was expected that increasing obligations would be met both by drawing on the stock of accumulated savings as well as their accumulated net income. The system was linked to public finances through portfolio management. In order to avoid fraud and give a public guarantee to mandatory contributions, the surplus of the funds were transferred to the government for investment.
The New Pension System
The reform of the Chilean pension system, implemented in late 1980, replaced the pay-as-you-go regime with a fully-funded pension system based on individual capital accounts, managed by private companies known as AFPs (Administradoras de Fondos de Pensiones). To reduce political opposition at the time of the reforms and to increase interest in the new system, contributions rates were set at a level low enough to increase net “take-home” pay. This was financed by the above mentioned increase in the minimum retirement age. On average, workers that opted for the new regime obtained an 11% effective increase in net wages. In addition, and in order to recognize workers past contributions to the old system, the government issued special bonds - known as “recognition bonds”- and deposited them in the transferring workers individual capital accounts. These bonds provided the link between the contributions to the old system and the new retirement funds. The new system allows the workers to choose the AFP they want to affiliate with, to transfer their funds among them, and to have voluntary savings accounts. It emphasizes uniformity of contributions and its structure of benefits covers old age, disability and survivors pensions. There is no collective affiliation or any restrictions on mobility between competing funds. Moreover, AFPs cannot discriminate rates or commissions among different contributors, either as a class or individually.
Pensions and Other Benefits
The main benefit provided by the Chilean system is pensions based on individual capital accounts, i.e. the value of the pensions depends on the amount of funds accumulated and the rate of return of AFP’s investment minus commissions. The new regime considers three types of pensions: old age, disability and survivor pension. When the system was introduced, the minimum retirement age was raised from 60 to 65 years for men and from 55 to 60 years for women. There is however the possibility of an early retirement. When an individual retires, he has two options: he can buy a life annuity from an insurance company with the accumulated funds or make scheduled monthly withdrawals from his account. A life annuity assures a steady and known income stream, protecting against excessive longevity. On the other hand, monthly withdrawals - if the individual outlives the program- assures the minimum pension guaranteed by the government for the rest of his life. If there is any balance left in the event of early death, it is inherited by his heirs. There is also a possibility of a lump sum withdrawal of any balance that exceeds the necessary capital to pay a pension equivalent to 70% of the pensionable salary and is at least 120% of the minimum pension.
(Source: Organisation de Coopération et de Développement Economiques)