Summary

The Chilean social security system is a blend of a mandatory privatised pension system and various different state run insurances for health care, accident insurance and unemployment insurance. Taken together, the system is comprehensive but a disproportionate burden falls on the individual employee compared to most comprehensive systems. The pension regime is essentially a mandatory, privately funded savings scheme.

Details

Contributions

Individuals contribute, in total, approximately 20% of their earnings up to $3,000 per month into mandatory private pensions, the healthcare system, life and disability insurance and unemployment cover. Employer contributions total around 4% on the same capped level of income.

Treaties

Chile has a reasonably wide range of social security agreements with European countries, the US, Canada and Australia. It is also party to the multilateral Ibero-American social security agreement, covering other Latin American countries.

Exemptions

Inbound expatriates can, if not already protected from local contributions by a social security agreement, be exempted from Chilean pension (but not other social security) obligations if they are covered by a foreign social security system that covers at least sickness, disability and old age, and they have ‘technical’ qualifications. The process for obtaining this exemption can be laborious. If contributions have been paid while in Chile, they can be refunded upon departure – again this is a comparatively time consuming process.

Administration

Where employees are affiliated to a pension scheme, the employer is responsible for deducting contributions from the employee’s salary and making the payment to the appropriate pension fund. The formalities for joining a pension fund are the responsibility of the individual, who has a free choice as to which they choose. The pension fund will notify the employer of the amount to be deducted from the individual and paid over.

Benefits

Upon retirement, an employee may choose to receive a lump sum payment, a pension or a combination of both. These are based on the amounts the employee has contributed to the fund. The lump sum can only be used to purchase annuity insurance from an insurance company.

Other

Compulsory employee social insurance contributions are deductible for income tax purposes. Voluntary contributions to pension funds are also tax deductible.

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