Observation (CEACR) - adopted 2009, published 99th ILC session (2010)

Old-Age Insurance (Industry, etc.) Convention, 1933 (No. 35) - Chile (Ratification: 1935)

1. Follow-up to the conclusions and recommendations of the Committee set up to examine the representation made by Chilean unions of employees of pension fund administrators (AFPs) under article 24 of the ILO Constitution. In its previous observation, the Committee requested the Government to reply to the 98th Session of the International Labour Conference and to provide a detailed report in 2009 on the implementation of the recommendations adopted by the Governing Body in March 2000 concerning the above representation (Governing Body, 277th Session, March 2000 (GB.277/17/5, March 2000)). The recommendations were as follows: (i) that the pension system established in 1980 by Legislative Decree No. 3.500, as amended, should be administered by non‑profit-making organizations; (ii) that representatives of the insured should participate in the administration of the system under conditions determined by national law and practice; and (iii) that employers should contribute to the financing of the insurance system. The Committee notes that, following the discussion of the Chile case at the Conference in June 2009, the Conference Committee noted that the 2008 reform creating a pillar based on solidarity had not resulted in any major changes to the private pension system established by Legislative Decree No. 3.500 of 1980. Concerned at the gravity of the financial situation of the private system, the Conference Committee urged the Government to provide a detailed report on the measures taken to ensure the viability of the system, if necessary with technical assistance from the ILO.

The Committee is bound to deplore the fact that despite the promises made by the Government representative and the express request of the Conference, no information on these issues has been provided by the Government for examination. In effect, the Government considered it appropriate to reply only to the observations made by the College of Teachers of Chile AG concerning the “historic debt” of social security. The Committee expresses concern at the Government’s determination to ignore, since 2000, the recommendations made to it by the international community and the numerous calls for dialogue by the Committee and urges the Government to reconsider its position.

The Committee has decided to examine the national situation based on the information provided orally by the Government representative at the Conference and on Act No. 20.255 of 2008 on the reform of the pension system.

(i) Administration by institutions not conducted with a view to profit (Article 10, paragraph 1, of the Convention) According to the information provided by the Government representative at the Conference, the 2008 structural reform has supplemented the individual capital accumulation social insurance system, which was established in Chile in 1981, with a new universal social insurance scheme based on solidarity which supplements the benefits insured by AFPs where these are minimal. The new scheme is designed to protect those who do not qualify for a pension. The old-age protection system has therefore been transformed into a mixed system administered by the Institute for Labour Security (ISL), the Institute for Social Provision (IPS), pension fund administrators (AFPs) and unemployment fund administrators (AFCs). The ISL and IPS are public entities, while AFPs and AFCs are, according to the statement made by the Government representative, “private non-profit-making entities”. The Committee would be grateful if the Government would explain how AFPs, which are established under the legal form of limited liability companies allowing profit-making activities, have been converted into “private non-profit-making entities” considering that all its previous reports have always presented these entities as private companies which, by definition, are profit-making institutions. The Committee notes that the general logic of the Chilean mixed pension system remains focused on individual saving capacity, since persons in a position to save are obliged by law to join an AFP. In this regard, the reform has not only maintained AFPs as the principal mechanism of old-age protection, but has also strengthened their position given that if their private management generates derisory pensions they will be supplemented by a complimentary old-age pension (APS) financed by national solidarity and paid to persons whose pensions do not reach a minimum threshold. The Committee also notes that Act No. 20.255 assigns new functions to the Superintendence of Pensions (SUPEN), which was previously responsible for supervising AFPs (private companies) and is now also responsible for supervising the IPS, which is a public body administering the solidarity system. The Committee would be grateful if the Government would explain the reasons for making private profit-making institutions and public non-profit-making bodies subject to the supervision of the same body – SUPEN.

(ii) Participation of the insured persons in the administration of the system (Article 10, paragraph 4, of the Convention). With regard to the recommendation that the representatives of the insured persons should participate in the administration of the old-age protection system, the Committee notes the indication of the Government representative at the Conference that, since the reform of the social insurance system in 2008, users have participated in the evaluation of the system, the monitoring of its operation and the formulation of policy proposals aimed at strengthening its development. The new system includes a Board of Pension System Users responsible for evaluating the operation of the pension system and proposing strategies. However, although representatives of workers and retired workers are included on this Board, which constitutes notable progress in terms of social dialogue, the Board has only advisory functions and may not participate in the administration of the pension system. Act No. 20.255 also established a Technical Investments Council to study the investments made by AFPs for the purposes of enhanced profitability and security. Even though this Council exerts considerable influence with regard to the investment of pension funds administered by AFPs, the Committee notes that there is no participation of representatives of the insured persons. Moreover, the lack of control over investments by insured persons may lead to high-risk investments and therefore potential losses. According to the indications given by the Worker members, the financial crisis has resulted in losses of between 30 and 40 per cent of the total of individual accounts administered by AFPs, equivalent to 7–14 years’ contributions. This led the Conference to express fears concerning the viability and sustainability of the system. In these circumstances, the Committee is bound to observe that the exclusion of the representatives of the protected persons (active workers and retired workers) from participation in the administration of AFPs and the Technical Investments Council is contrary to the right of the insured persons to participate in the administration of insurance system financed by their contributions, in accordance with Article 10 of the Convention.

(iii) Contribution of employers to the financing of pensions (Article 9 of the Convention). Following the adoption of Legislative Decree No. 3.500 in 1980, payments made into individual capital accumulation accounts were payable in full by the insured persons. The 2008 reform has not altered the method of compulsory financing of old-age benefits administered by AFPs. The Committee notes, however, that this reform has authorized the establishment of “collective pension funds” allowing employers to make voluntary contributions equivalent to those paid by the insured persons, a measure the implementation of which is dependent on the existence of a high level of collective bargaining. According to the Government representative’s indication at the Conference, following the 2008 reform, employers now contribute to the social insurance system by financing contributions to fund the survivors’ insurance scheme set out in section 59 of Legislative Decree No. 3.500 of 1980. The Committee requests the Government to provide information on any other initiative designed to ensure the financial participation of employers in the social insurance system.

2. Follow-up to the conclusions and recommendations of the Committee set up to examine the representation made by the College of Teachers of Chile AG under article 24 of the ILO Constitution. The Committee notes the information provided orally by the Government representative to the Conference Committee concerning the implementation of the recommendations adopted by the Governing Body in 2007 following the report of the Committee set up to examine the representation made by the College of Teachers of Chile AG under article 24 of the ILO Constitution (see document GB.298/15/6), alleging non-observance by Chile of Conventions Nos 35 and 37 in relation to the problem of the social security arrears arising from non-payment of the further training allowance. The Government representative indicated that the system for controlling public subsidies has been strengthened, both in terms of public municipal education and private education. Since March 2008, Chile has gradually been implementing a major reform of its labour tribunals which has significantly shortened the duration of cases and ensured access to free legal assistance. The General Inspectorate and the Labour Directorate also need to find appropriate solutions to determine the amounts of the arrears. In this regard, the Organic Municipal Act has been amended and now provides for heaver penalties including the removal from office of mayors not fulfilling their obligations, in particular the obligation to pay old-age contributions. The Committee would be grateful if the Government would explain in its next report, with the support of figures, how these measures have contributed to resolving the problem of contribution arrears in accordance with the 2007 recommendations of the Governing Body.

3. Historic debt. With regard to the issue of the “historic debt” of social security resulting from the failure to take into account part of the remuneration of nearly 80,000 teachers for the purposes of calculating the right to a pension, the Committee notes the statement made by the Government representative to the Conference Committee that this was a political demand without legal basis made by workers in the education sector for a special allowance that they had been granted on a non-taxable basis to be taken into account for the purposes of pension rights. This position has been confirmed by the Government in its reply of 5 November 2009 to the allegations made by the College of Teachers. Recognizing the efforts made by democratic Governments to improve the social security system and ensure old-age protection for the most vulnerable categories of society, the worker members indicated that they continued to hope that the Government would give effect to the recommendations made by the Governing Body to reform the structural problems in the administration of the private pension system, resolve the problem of arrears in the payment of social security contributions and solve the issue of “historic debt”. In its conclusions, the Conference Committee recalled that the problems relating to the application of the Convention date back several years without effective solutions being found by the Government. It therefore urged the Government to transmit legal and technical information to allow the Committee of Experts to examine together with the detailed report requested from the Government on the application of the Convention.

The Committee also notes the communications of the College of Teachers of Chile AG, received in July, September and October 2009, concerning the developments relating to the issue of “historic debt”. It notes, in particular, the unanimous adoption, in August 2009, by the Special Commission established to that end by the Chamber of Deputies of financial proposals designed to resolve the situation. In November 2009, the Government’s refusal to acknowledge the “historic debt” prompted a national strike by teachers and internal political conflict. The situation is complicated further by the fact that the report of the Parliamentary Committee considers not only the legal aspects of the problem, but also mentions the State’s moral obligation towards teachers. The Committee was informed that, on 9 November 2009, the College of Teachers of Chile AG submitted to the International Labour Office a representation under article 24 of the Constitution alleging non-observance by Chile of the obligations arising under Conventions Nos 35 and 37. In view of this situation, the Committee is bound to postpone consideration of this matter to its next session pending the examination of the representation concerned by the Governing Body.

[The Government is asked to report in detail in 2010.]