Pension Fund

Since 1980, all new workers joining the workforce are required to contribute to private pension funds managed by Pension Fund Administrators (AFPs) under an individual capitalization system.

Contributions are deducted from their monthly pay, based on a capped monthly earnings of UF 80.2 and adjusted according to changes in real compensation.

The taxable cap is updated annually by the Superintendence of Pensions and is currently set at UF 80.2 (approximately USD 2,982). Employees can also make additional voluntary contributions with a monthly limit of UF 50 (USD 1,859) or UF 600 (USD 22,311) annually, while employers can make non-taxable deposits of up to UF 900 (USD 33,466) per year. Upon retirement, the worker has the option of receiving a lump sum payment, a pension, or a combination of both, which are based on their contributions.

The lump sum can only be used to buy annuity insurance. As of February 2, 2019, independent workers, those who bill for professional services amounting to 5 or more minimum monthly wages and were under 55 (men) or 50 (women) years old as of January 1, 2018, are also required to contribute.

Contributions to Pension Fund

Pension plan contributions are made exclusively by employees and self-employed individuals. The contributions made by employees are eligible for deductions from their taxable income when computing their personal income tax obligation.

The contributions to a pension plan are calculated based on a monthly basis. Employers are only responsible for withholding and remitting the employees' contributions to the pension plan. No other obligations are imposed on them.

Private pension plan contributions are set at a rate of 10%, in addition to a commission that varies based on each fund (currently around 6.69% and 1.45%).

In addition to the contribution to the pension plan, an employer must also pay a premium to cover the cost of disability and survivorship insurance. The pension fund is required to purchase disability and survivorship insurance from an insurance company.