Observation (CEACR) - adopted 2010, published 100th ILC session (2011)

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

Follow-up to the recommendations of the Tripartite Committee
(representations made under article 24 of the Constitution of the ILO)

1. Representation made by the National Trade Union Coordinating Council (CNS) and a number of national trade unions of workers of the Private Sector Pension Funds (AFPs). The Committee recalls that the non-observance by Chile of Convention No. 35 and the Invalidity Insurance (Industry, etc.) Convention, 1933 (No. 37), following the reform of the pensions system in 1980 has been recognized for many years. This issue has given rise to several representation procedures under article 24 of the ILO Constitution, in the context of which, in 1986 and 2000, the Governing Body concluded that the Conventions in question were not complied with and entrusted the Committee of Experts with the task of supervising the implementation of its conclusions and recommendations. These conclusions and recommendations called on the Government to amend the national legislation to ensure that the privately managed pension system established by Legislative Decree No. 3.500 of 1980 is administered by non-profit-making organizations; that representatives of the insured are able to participate in the administration of the system; and that employers contribute to the financing of the old-age and invalidity benefits. The Committee recalls that, in view of the absence of adequate measures taken by the Government to give effect to the recommendations of the Governing Body, this case has already been discussed on repeated occasions in the Conference Committee on the Application of Standards in 1987, 1993, 1995, 2001 and, most recently, in 2009. During the most recent Conference Committee discussion of the case, the Government recognized that the privately managed pension system established in 1980 was not in accordance with the basic principle for social security systems encouraged by the ILO in a context of tripartism and the Government indicated that a legislative reform in 2008 (Act No. 20.255) had resulted, with ILO technical assistance, in the most significant social reform through the establishment, in addition to the existing pension system of a system of minimum pensions based on the principle of solidarity, under which the total number of beneficiaries in December 2008 would be 600,000, rising to nearly 1,200,000 beneficiaries in December 2012.

In its examination of the present case in 2009, the Committee considered that this reform did not give effect to recommendations of the Governing Body as the 2008 reform did not modify the general logic of the Chilean pension system, which remains based on individual saving capacity: persons who are in employment are still required by law to be affiliated to a profit-making pension fund and have to pay into their individual capital accumulation account a percentage of their remuneration, without employers also being required by law to contribute to the financing of benefits. In this respect, the Committee observed that the reform not only maintained the private pension fund administrators (AFPs) as the principal mechanism for old-age protection, but in effect reinforced their position because, if their private management generates pensions that are not sufficient to cover at least the essential needs of the pensioner, these insufficient amounts will be supplemented by an old-age pension (APS) financed through national solidarity and paid to persons whose retirement pensions do not reach a minimum threshold.

In its latest report, the Government confines itself to confirming that the privately managed pension system is administered by profit-making institutions. According to the information provided by the Worker members during the discussion of the case at the Conference in 2009, 30 per cent of the profits made on the funds resulting from the contributions paid by workers thereby go to pension fund administrators, in addition to the management fees for the funds. The Committee notes with continuing concern that the management of the system by private profit-making companies gives rise to considerable losses for workers, who are thereby denied part of the profits made by the contributions that they pay into their capital accumulation accounts.

With regard to the issue of the participation of insured persons in the administration of the system, the Government indicates that the reform introduced by Act No. 20.255 was intended to ensure better representation of insured persons in the administration of pension funds by establishing a users’ commission composed of representatives of workers, retirees, public institutions and private institutions, and that the commission is chaired by a university professor. According to the Government, the function of this commission is to ensure the accuracy of the information provided to users on the basis of which they make their decisions when selecting their pension fund. On 10 May 2010, the users’ commission issued its first report containing, inter alia, proposals relating to the various aspects of the operation of the pensions system. In this respect, the Committee notes that the creation of the users’ commission, although representing a step in the right direction, still does not guarantee the representatives of insured persons the right to be able to participate in the administration of their pension funds, as required by the Conventions under examination. The Government is therefore requested to take the necessary measures to ensure, in accordance with the Conventions under examination, that the representatives of insured persons participate in the administrative bodies of AFPs, and in particular those that determine investment policies. The Committee emphasizes in this respect that other countries which have also adopted capital accumulation systems have established systems of administration that guarantee the participation of insured persons.

Finally, with regard to the need to ensure the collective financing of pensions, the Government indicates in its latest report that the reform of the system introduced by Act No. 20.255 of 2008 has had the effect of making employers responsible for invalidity and survivors’ insurance contributions. In the case of enterprises employing 100 persons or more, this new measure entered into force on 1 June 2009 and will be extended to all enterprises from 1 July 2011. The Committee notes that this reform has not had an impact on the financing of old-age pensions, which remain exclusively financed by workers. The Committee nevertheless welcomes that it establishes the practice of contribution by employers to the invalidity and survivors protection scheme, thereby introducing the principle of the collective financing. The Committee notes, however, that the level of the contributions that are solely to be paid by employed persons (namely old-age contributions and deductions from wages for the administration of pension funds) represents 11.5 per cent of the monthly wage of employed persons, while the contribution of employers to the financing of invalidity and survivors’ benefits is equivalent to only 1.87 per cent of the wage. The Committee hopes that this is only a first step by the Government with a view to establishing a better balance between the contributions of employers and of workers to the financing of old-age, invalidity and survivors’ insurance schemes. As an informational matter, the Committee observes in this respect that Social Security (Minimum Standards) Convention, 1952 (No. 102), provides that the total of the insurance contributions to be paid by protected employed persons should not exceed 50 per cent.

In view of all of the substantive questions arising in relation to the application of the Convention, the Committee encourages the Government to continue having recourse to the technical assistance of the Office, as it has done in recent years, with a view to continuing the reform of the Chilean retirement pensions system based on the principles of solidarity, the sharing of risks, and collective financing, which are the essence of social security, combined with the principles of transparent, responsible and democratic administration of the pensions scheme by institutions that are not profit making, with the participation of the representatives of the insured persons.

2. Representations made by the College of Teachers of Chile AG. In 1999 and 2007, in the context of two representations made by the College of Teachers of Chile AG alleging non-observance by Chile of Conventions Nos 35 and 37 on the grounds of non‑payment of part of the social security contributions based on the gross remuneration of teachers, the Governing Body approved the reports of the tripartite committees established by virtue of article 24 of the ILO Constitution. These reports found that the Conventions had not been observed and called on the Committee of Experts to follow up the recommendations in the reports. In the first case, the Government was called upon to guarantee the payment by municipal authorities of the social security contribution arrears for teachers so that they could lay claim to full social security benefits, and particularly old-age and invalidity benefits. In the second case, the Governing Body concluded that it was the responsibility of the State to guarantee the payment of the debt in relation to the social security system resulting from the non-payment to teachers by the municipal authorities of an education subsidy which constituted a component of remuneration on the basis of which social security contributions are calculated and which therefore results in a decrease in social security benefits.

The Committee notes that, according to the information provided by the Government in its latest report, action has been taken with a view to preventing delays in the payment of social security contributions in combination with an unprecedented reform to improve the operation of the labour justice system. The Government nevertheless indicates that the education system is prone to disputes relating to the problem of the payment of certain components of wages, and particularly special subsidies, in view of the complexity of the structure of remuneration, which complicates the determination of arrears, and that these issues are the responsibility of the Court of Accounts (Contraloría General) and the directorate of labour, which have had to resolve these disputes in an appropriate manner. The Government adds, with regard to the special problem of teachers employed by municipal authorities, that the Basic Act on the municipal sector has been amended to provide for adequate penalties against the mayors of municipal authorities who do not comply with their obligations, including the payment of the social contributions owed in respect of their employees. The legislation henceforth includes the dissuasive concept of “significant failure to discharge a duty”, which may lead to the removal from office of those responsible and the prohibition on their holding public office in the future. Finally, the 2008 reform of the social insurance system has reinforced the responsibility of mayors and other competent authorities in relation to the payment of social contributions.

The Committee takes due note of this information and invites the Government to describe the manner in which the new legislation is applied in practice, including with an indication of the number of inspections carried out, particularly by the labour directorate and the Court of Accounts, with a view to ensuring the payment by municipal authorities of the education subsidy; the number and nature of the violations reported; and the number and nature of the penalties imposed. The Government is also requested to indicate whether the situation of the arrears in the case of municipal authorities has been resolved and to indicate any amounts that remain unpaid; the number of municipal authorities that are still in arrears in the payment of the education subsidy, the amounts involved and the number of workers affected; as well as the amounts of the reimbursements made.

3. Representation made by the College of Teachers of Chile AG. On 9 November 2009, the College of Teachers of Chile AG, under article 24 of the ILO Constitution, presented a representation alleging non-observance by Chile of Convention No. 35 and Convention No. 37. At its 308th Session (June 2010), the ILO Governing Body found this representation receivable and decided “to postpone the appointment of the Committee to examine the representation pending the examination of the case by the Committee of Experts at its next session, in November–December 2010”. The Governing Body also decided “to transmit the information provided by the complainant to the Committee of Experts with a view to the examination of this issue in the context of the follow-up given to the recommendations previously adopted by the Governing Body on similar matters, as envisaged by Article 3, paragraph 3, of the Standing Orders concerning the procedure for the examination of representations”.

The Committee notes the mandate assigned by the Governing Body in conformity with article 3, paragraph 3, of the Standing Orders concerning the procedure for the examination of representations. In accordance with this provision, “if a representation which the Governing Body decides is receivable relates to facts and allegations similar to those which have been the subject of an earlier representation, the appointment of the committee charged with examining the new representation may be postponed pending the examination by the Committee of Experts on the Application of Conventions and Recommendations of the follow-up given to the recommendations previously adopted by the Governing Body”. The recommendations of the Governing Body in respect of the previous representations presented by the College of Teachers regarding similar facts and allegations were adopted in 1999 and 2007 and the follow-up given is examined under point 2 above.

The 2009 representation procedure led the Committee to suspend its examination under article 22 of the ILO Constitution of the issues related to this representation, pending a decision by the Governing Body on this matter. The Committee recalls that it had treated these matters in its observations of 2008 and 2009 based on the information supplied by the College of Teachers A.G. of Chile and the Government and also on the information emanating from the discussion in 2009 by the Conference Committee on the Application of Standards of the implementation by Chile of Convention No. 35.

The Committee notes that the College of Teachers of Chile AG indicates that in 1980 Legislative Decree No. 3.551 issuing standards respecting remuneration in the public sector established, as from 1 January 1981, a special untaxed subsidy for teachers under the authority of the Ministry of Public Education. Calculated as a pro rata of the basic wage, this subsidy amounted to 90 per cent of the wage for graduate teachers and 50 per cent for non-titularized teachers. In 1982, a law transferred to the municipal authorities teachers who had previously been under the responsibility of the Ministry of Public Education, while placing them under the remuneration system of the private sector. This transfer resulted in the ending of the payment of the subsidy. The College of Teachers asserts that the non-payment of this component of their remuneration is at the origins of a “historic debt” of the State in relation to teachers. Furthermore, according to the College of Teachers of Chile AG, as social security contributions represent a percentage of gross remuneration and are paid by the employer to the competent social security bodies, the ending of the payment of the special subsidy also resulted in a decrease in the contributions of the employers to their capital accumulation retirement accounts and therefore a decrease in the amount of the pensions of around 80,000 teachers, in violation of the general principles set out in Conventions Nos 35 and 37, ratified by Chile.

According to the information supplied by the Government in its reports under article 22 of the ILO Constitution in 2009 and 2010, the special subsidy established by Legislative Decree No. 3.551 of 1980 constitutes a non-taxable supplement to remuneration paid only to public employees not subject to old-age and invalidity contributions. The Government adds that all teachers were transferred to the private remuneration system by Act No. 18.196 of 1982, which explicitly provides that the legislative texts governing the public sector remuneration system, including Legislative Decree No. 3.551 of 1980, shall no longer be applicable to the persons concerned. The Government also indicates that since 1991 the conditions of service of teachers employed by municipal authorities have been governed by Act No. 19.070, which does not provide for the maintenance of the subsidy referred to above, and that the Supreme Court has found that the fact that agreements may in certain cases have been concluded for the maintenance of the previous remuneration system cannot be considered as legitimately applying to employment contracts concluded following the adoption of Act No. 18.196, which prohibits such agreements. Furthermore, the Court of Accounts (Contraloría General de la República) has considered that, although certain teachers transferred to the municipal authorities may have continued to receive a wage supplement of a nature similar to the special subsidy established by Legislative Decree No. 3.551, this amount was the result of an agreement concluded by the latter with the municipal authorities employing them. It accordingly considers that there is no “historic debt” in relation to those teachers, but that it consists of a political claim by the latter.

The Committee notes that the new representation made by the College of Teachers of Chile AG bears similarities with the two previous representations since all three cases concern allegations relating to the non-payment of social contributions with an impact on the level of the teachers’ old-age and invalidity pensions. The Committee notes that the first two representations concerned the non-observance by the competent authorities of the legal provision of the national legislation, and that the existence at the national level of a legal basis regarding the entitlement of teachers to the payment of arrears of social contributions was clearly established. However, the new representation made in 2009 by the College of Teachers raises the question of whether there exists in national law a legal basis establishing the entitlement of teachers to maintain a benefit derived from the conditions of service of public employees, which no longer applied to them due to their transfer under different conditions of service.

The Committee observes, therefore, that the status of teachers, in the context of the 2009 representation, raises new questions governed by contested domestic law. The Committee notes that although the new representation concerns allegations similar to those raised by the 1999 and 2007 representations, the legal facts on which the 2009 representation is based are different from these earlier representations.  Accordingly, the Committee, replying to the mandate assigned by the Governing Body, concludes that the follow-up to the recommendations adopted previously by the Governing Body are not relevant in the context of the examination of the 2009 representation.