Prepared by Swiss Life Network. I SUMMARY Social Security Eligibility All persons gainfully employed after January 1, 1983, and all those who contributed to the old system. Self-employed persons may also join the current system. Retirement Age 65M/60F Contributions Salaried employees: 20% of monthly earnings up to UF 73.2*. From the 20% contribution, 13% is allocated to old age, survivors and disability benefits and 7% to health insurance. Employer contribution to workmen s compensation: 0.95% of payroll up to UF 73.2 per month. A further 1.7% to 3.4% of payroll may be paid depending on risk level of industry. Contributions depend on the nature of the job (wage earners have to contribute less than salaried employees). Retirement Disability Death Old Age Pension: Depends on total contributions paid, including interest. Minimum pension guaranteed by government. Periodically indexed for inflation. Disability Pension in the event of Total Disability: The pension amounts to 70% of average income of previous 10 years for contributing persons. Partial Disability Pension: 50% of average income of previous 10 years. Widow s Pension: 50% of old age pension if children receive orphans pensions. Orphan s Pension: 15% of old age pension till age 18, or 24 if student. If there are no children aged under 18 or 24, or no children at all, the widow s pension is 60% of old age pension. Medical Employees contribute 7% of monthly income up to UF 73.2 to a health insurance institution. They may choose between the private institution (ISAPRE) or the state institution (FONASA, the National Health Fund). Both cover employees and their legal dependants. Medical services are reimbursed in percentages in the Medical Services Book issued by FONASA. Payments vary between 30% and 100% depending on services and the employee s monthly income. *The Unidad de Fomento (UF) is a unit of accounting that is used in Chile. The exchange rate between the UF and the Chilean peso is constantly adjusted to inflation. Exchange rate: UF 1 = CLP 24,622.78 (31/03/2015). Source: http://www.sii.cl/pagina/valores/uf/uf2015.htm Employee Reference Manual 2015-2016 - 1 - Swiss Life Network
Private Benefit Plans Eligibility Usually all employees under age 65. Retirement Age Contributions Retirement Disability 65M/60F Plans can be contributory or non-contributory. Normally no benefits provided. Only offered by larger multinational companies. Employers usually provide accidental coverage (dismemberment) as a lump sum rider to group life coverage. Death Group life insurance plans are often provided by employers with coverage of death, accidental death and dismemberment. Benefit frequently amounts to 12, 24 or 36 monthly salaries, or to a fixed sum. Medical Companies usually offer health insurance plans to their employees, covering a percentage of the cost of medical services not covered by the relevant ISAPRE or FONASA. Vesting Full and immediate. Taxation Employer Contributions Social security: None. Private benefit plans: Voluntary contributions are fully tax-deductible. Employee Contributions Social security: Deductible up to a specified limit. Private benefit plans: Deductible up to a specified limit. Taxed as income. Employee Reference Manual 2015-2016 - 2 - Swiss Life Network
II INTRODUCTION Country Statistics* Population/ growth rate Age structure 0-14 years: 15-24 years: 25-54 years: 55-64 years: 65 years and over: GDP purchasing power parity/ Real growth rate Agriculture Industry Services Unemployment rate Inflation rate Annual gross salary** Para-professionals Professionals Management Legal minimum wage Exchange rate on February 27, 2015 Currency: Chilean Peso 17,363,894 (July 2014 est.) / 0.84% (2014 est.) 20.7% 16.3% 43.2% 9.9% 9.7% (2014 est.) USD 335.4 billion (2013 est.) 4.4% (2013 est.) 3.6% 35.4% 61% (2013 est.) 6% (2013 est.) 1.7% (2013 est.) in,000 CLP General: 7,429 Skilled: 11,052 Junior: 18,793 Senior: 31,955 Lower middle: 57,382 Upper middle: 87,947 225 per month (for workers aged 18-65) 1 CLP = 0.0016 USD 1 CLP = 0.0014 EUR *Source: Chilean Central Bank **Source: Mercer s International Geographic Salary Differentials, Edition 2015 Legislation and Insurance Market Update in Brief No significant changes in legislation or the insurance market in 2014. Employee Reference Manual 2015-2016 - 3 - Swiss Life Network
III SOCIAL SECURITY Background Information The pension system is based on individual capitalization of pension contributions. The government sets the minimum requirements for a pension and also guarantees a minimum pension, regardless of the amount of the individual capitalisation account. Private entities called pension fund administrators (AFPs) manage the funds. Under this system, monthly contributions are accumulated in an individual interest-bearing capitalization account. The accumulated funds are portable and are the property of the individual employee. Hence employee is responsible for building their own old age pension. Employees affiliated with the system are free to choose among the different fund administrators. Chilean current social security system was introduced in the early eighties and reformed in 2008 and since then has served as an example for many other countries. Pension fund administrators are responsible for the following tasks: Collection of pension contributions Keeping individual accounts up to date Investments, arranging disability and survivors insurance with a life insurance company Paying out benefits Compliance with rules issued by the government is overseen by the Superintendence of Pensions and the Superintendence of Securities and Insurance. The same social security system applies to all employees. Only the armed forces are under a different system. The government guarantees pension payments in case of bankruptcy of a pension fund administrator and aids workers who are unable to finance their own pensions. Pension Fund Administrators can be freely established. Free competition prevails among the different administrators and the insured is permitted to choose both the most suitable administrator and to change administrator at any time with 30 day notice. Social Security Pension Reform In March 2008, the Chilean pension system was reformed with the introduction of a new package of measures aimed at ensuring a minimum basic pension for the whole Chilean population. These measures are as follows: Introduction of a system paying a Pensión Básica Universal (Universal Basic Pension or PBU) to people who have been unable to save towards their retirement Gradual introduction of mandatory payments by self-employed workers Promotion of gender equality (entitlement of working women to child care; special one-year contribution bonus for each living son or daughter; division of the accumulated balance into individual accounts for each spouse in the event of divorce or annulment) Establishment of a voluntary group retirement savings plan (APV) under which workers can agree to voluntary shared savings with their employers Achievement of increased transparency and economies of scale by writing compulsory death and disability insurance for the members of all AFP s (today each AFP offers death and disability cover only to its own members). Employee Reference Manual 2015-2016 - 4 - Swiss Life Network
Eligibility Any person gainfully employed after January 1, 1983 is required to contribute to a pension fund. All employees previously contributing to the old pension system, as well as independent workers whose earnings exceed the minimum salary fixed by the state, may join the new pension system. Contributions A mandatory monthly contribution must be paid into the fund in addition to any acknowledged amounts transferred from the former pension system. Contributions to old age pensions and health insurance are fully paid by the employee; contributions to unemployment insurance are shared between employee and employer. Additional voluntary contributions to the AFP are permitted. The mandatory contribution amounts to 20% of monthly income with an upper limit which is increased monthly according to inflation. Reference for this calculation and the respective upper limit are UF s (Unidad de Fomento). For the social security ceiling, UF 73.2 are fixed, the value per UF varies daily. The current daily value per UF is published under www.bcentral.cl. To finance old age as well as post-retirement death benefits, survivors and disability pensions, 13% of the monthly contribution is deposited in an individual employee account. The accumulated amount in the individual account determines the insured s old age pension. The remaining 7% covers health insurance as well as unemployment insurance. Contributions are roughly 2% of monthly income and depend on the nature of the job, i.e. wage earners contribute less than salaried employees. Since July 1, 2009, employers have been responsible for financing all contributions to Survivor and Disability Insurance (SIS), which hitherto were made by employees. This change, a result of the 2008 Pension Reform Law, currently only applies to companies with 100 employees or more. About 1% of the insured s monthly salary is paid to the fund administrator as a commission. Commission payments vary among administrators since free competition prevails. The employer deducts the contributions from the employee s salary. The employer is responsible to transfer these to the fund administrator. Employees may choose their fund and transfer their account to another fund. Such transfers are subject to 30 days notice. Retirement Retirement Age Normal retirement: Early retirement: 65M/60F Possible; See below Qualifying Conditions No conditions other than age requirements must be met. For early retirement pension see below. Employee Reference Manual 2015-2016 - 5 - Swiss Life Network
Old Age Pension at normal retirement age: The pension paid to the retired employee depends on the amount of accumulated contributions in the individual account, the conversion factor and the technical interest rate. The technical interest rate depends on the type of pension selected. The state guarantees a minimum old age per month which is periodically indexed to inflation. Old Age Pension at early retirement age: In order to receive an early old age pension, the employee must apply for a whole life annuity contract with a life insurance company. The annuity obtained may not be less than the average income earned over the last 10 years, nor less than 110% of the minimum pension. Disability Qualifying Conditions Disability benefits can be claimed by the employee if a state medical committee has declared the person permanently disabled to a degree of at least 50% (partial) or 66% (total). The employee must have paid contributions in order to claim such benefits. If the worker is unemployed for less than 12 months, disability benefits may still be claimed. General: Pension fund administrators have contractual agreements with life insurance companies to finance this coverage under group contracts for all affiliates. In case of claims, the insurance company has to pay the so-called additional contribution to the respective fund, which is the difference between the capital required to pay the disability pension and the balance of the affiliate s individual account plus any bonus resulting from contributions made to the previous social security system (prior to 1980). The amount of the disability pension is calculated according to conversion tables and a technical interest rate of almost 5%. Disability Pension in the event of Total Disability: Non-accidental disability pension is equal to 70% of average income over the past 10 years for contributing employees (indexed for inflation). If the employee has paid contributions for less than 10 years, the average of the contribution period is taken into account. This minimum does not apply to accidental disability. Disability pension for the unemployed equals 50% of average income. Disability Pension in the event of Partial Disability: Non-accidental disability pension is equal to 50% of average income over the past 10 years for contributing employees (indexed for inflation). If the employee has paid contributions for less than 10 years, the average of the contribution period is taken into account. This minimum does not apply to accidental disability. Disability pension for the unemployed equals 35% of average income. Employee Reference Manual 2015-2016 - 6 - Swiss Life Network
Death Qualifying Conditions The following individuals may claim survivors benefits: Widow of deceased employee Disabled widower of deceased employee Children of the deceased, if under age 18 (or 24 if studying) Unmarried mother of insured s child Parents previously supported by insured Survivors pensions are the same for both the employed and the unemployed. The financing of survivors benefits is the same as for disability pensions. Widow s pension: 50% of disability pension if the children receive an orphan s pension. Widow s pension increases to 60% when children no longer receive the orphan s pension. Widower s pension: 60% of disability pension. Orphan s pension: 15% of disability pension until age 18 (age 24 if studying). If full orphan or no spouse is eligible for pension, the pension a spouse would have received is distributed equally among the children. Unmarried mother of insured s children: 30% of disability pension if children receive orphan s pension. Once orphan s pension ceases, the unmarried mother receives 36% of disability pension. Lump Sum Death: The death benefit always equals a lump sum of 15 UF financed by a life insurance. This amount is paid to the survivors of the insured as well as to the survivors of an old age pension or of a disability pension recipient. Sickness Qualifying Conditions Currently insured wage earners and salaried employees with a total of six months of contributions, of which three must have been contributed within the last six months. Social security pays a sickness benefit as from the 4th day (for absences of 10 days or less); for absences of more than 10 days, payments are made as from the 1st day. Employees covered by FONASA (the Public Health System) or ISAPRE (private system) receive salary compensation from one of these institutions for the duration of the illness or until disability is established. The maximum amount of this benefit is UF 73.2 per month. If the employee s salary is higher than UF 73.2 the difference is not covered by this benefit, however some companies have a special insurance programme aimed at covering this difference. Employee Reference Manual 2015-2016 - 7 - Swiss Life Network
Medical/Health Qualifying Conditions There is no minimum qualifying period for eligibility to medical benefits. Employees must decide if they wish to be covered by FONASA, the public health system, or an ISAPRE, which is a privately managed health system. The coverage includes legal dependants of the employee. If the employee opts for an ISAPRE, the benefits provided will depend on the amount of contribution, as well as the individual s age, sex and the number of dependants requiring cover. However, the ISAPRE must provide medical care at least equal to what is provided under FONASA. If the employee opts for FONASA, all medical services are recompensed in percentages determined in the Medical Services Book of Rates, prepared by FONASA. This book is updated annually. The percentage varies between 30% and 100% according to the service and monthly income of the employee. Work Injury Qualifying Conditions A separate scheme covers accidents at work. are provided by organisations called Mutuales de Trabajadores. Employers are required to make a contribution of 0.95% of the payroll to a ceiling of UF 73.23 a month, to cover accidents at work or professional diseases. A further 1.7% to 3.4% of the payroll may be paid depending upon the risk level of the industry. There is no minimum qualifying period. Accidents from the workplace to the employer s home are covered. If the person becomes permanently disable because of a work accident or an occupational disease, the AFP will provide coverage according to the kind of disability. Otherwise, the workers compensation (Mutuales de Trabajadores) will cover the person until recovery or until disability is established. The temporary disability benefit is the average monthly net earnings in the three months before the onset of disability. It is payable up to 12 months (can be extended up to 24). The permanent disability benefit, with an assessed degree of disability of at least 70%, is equivalent to 70% of the base wage. If a disability of over 15% and less than 40% is declared, the employee will be entitled to a disability indemnification payable as a lump sum to the equivalent of 1.5 to 15 (according to the disability) times the average salary over the six months before the accident. Unemployment A collective of AFP s has won the concession for private-sector management of the new unemployment insurance plan. Redundant workers receive a percentage of the total contributions accumulated in their individual accounts for the first five months of unemployment. Employee Reference Manual 2015-2016 - 8 - Swiss Life Network
The calculated monthly benefit is paid at 100% in the first month, reducing to 90%, 80% and 70% in the following three months, and in the fifth month, the remaining balance of the individual account is paid out. Participation is mandatory for newly hired workers. Employees contribute 0.6% of salary up to a ceiling of UF 109.8 and employers 1.6% of payroll towards individual accounts. After participating for at least 1 year, a member is eligible for benefits. If a person is still unemployed when the account runs out, a solidarity fund, financed by the government, plus a 0.8% of payroll employer contribution, kicks in. Both employer contributions are tax deductible. Companies providing a more generous benefit are exempt from this programme. With this Unemployment Insurance, Chile has become the first country to use individual accounts in an unemployment insurance system. Other Maternity Maternity benefits are due to a female employee from the moment she signs the work contract with the employer. are funded through FONASA or ISAPRE. FONASA pays approximately 18 weeks maternity leave with the benefit equal to the average monthly net earnings in the three months before the maternity leave. The amount of benefits varies under ISAPRE according to the cover provided to the employee. Taxation Employee s Contributions Employee contributions are fully tax-deductible up to 13.2 UF, depending on the commission and insurance cost taken by the pension fund administrator. Employer s Contributions Employer contributions for benefits that complement Social Security (life, health, pensions, etc.) are deductible for the employer. Residents of Chile are subject to tax on all income, including pensions, regardless of their source. Other Information Payment Alternatives There are four alternatives available for the payment of old age pension, disability pension, widow s/widower s pension and orphan s pension:. Immediate annuity: The total account balance transferred to the insurance company which offers a technical interest rate depending on the market conditions at the moment of the calculation of the annuity. Employee Reference Manual 2015-2016 - 9 - Swiss Life Network
Temporary pension with deferred life annuity: The insured person transfers part of the accumulated funds to a life insurance company which pays a monthly pension as of an agreed date. By maintaining a balance in the individual account, the insured will receive a monthly pension from the pension fund administrator up to the period the life annuity payments begin. Scheduled withdrawals: Funds in the individual s account are kept with the chosen fund administrator. Fixed monthly withdrawals are charged against the account and are calculated on a yearly basis taking the insured s life expectancy and dependants into consideration as well as the increase or decrease of the fund because of the annual return. Immediate annuity with scheduled withdrawals: The insured chooses the above-mentioned alternatives 1 and 3. The total account is divided into two parts to finance each alternative. Pension Indexing All pensions paid by social security are indexed on a daily basis to the inflation of the previous month. Reciprocal Social Security Agreements Algeria, Australia, Austria, Belgium, Brazil, Canada, Canada (Quebec), Colombia, the Czech Republic, Denmark, Ecuador, France, Germany, Luxemburg, the Netherlands, Norway, Peru, Portugal, Spain, Sweden, Switzerland, Uruguay and the United States of America. Employee Reference Manual 2015-2016 - 10 - Swiss Life Network
IV PRIVATE BENEFIT PLANS Background Information Employer sponsored pension schemes are still relatively rare but there is increasing interest among employers, particularly subsidiaries of multinationals. Companies can take out group life insurance for their employees who may be either contributory or noncontributory. Coverage is a capital sum based on a fixed amount or multiple of salary (the normal amount is 2 annual salaries). The main cover may be extended with riders, including accidental death, dismemberment and disability due to accident, permanent disability caused by illness, and accident with the loss of 80% or 66% of work capacity, or medical charges following an accident. The insured amounts of the additional coverage may be different from those of the main policy, except in the case of permanent disability. The amount of coverage for accident (death, dismemberment and disability) may be up to twice the life insurance amount. Eligibility In general, any employee under age 65. Contributions Contribution varies; it is sometimes non-contributory, sometimes contributory. Retirement Retirement Age Normal retirement: 65M/60F Companies do not normally provide retirement benefits due to the extensive social security system. However, after the introduction of the new pension fund rules in March 2002 (APV Ahorro Previsional Voluntario), and the creation of Collective Voluntary Pension Savings (ahorro provisional voluntario colectivo or APVC) on October 1, 2008, employers can organise discretionary supplemental plans, and employees can make voluntary contributions in addition to those required under the social security system. The new rules apply to contributions made by employees to a private pension fund administrator (AFP) on an individual voluntary basis, or as part of a discretionary employer plan. Employee Reference Manual 2015-2016 - 11 - Swiss Life Network
The following summarizes the most important benefits of the regulations: Employees voluntary contributions in addition to minimum statutory requirements can be withdrawn without restriction at any time during the employee s career. However, as the objective is to encourage employees to increase retirement savings, withdrawals made before retirement will be penalised with a special tax of at least 3% (with a maximum of 7%). Contributions pursuant to a discretionary employer retirement plan cannot be freely withdrawn. Such contributions can only be withdrawn when the employee attains retirement eligibility. The advantageous tax treatment of mandatory retirement fund contributions is also granted to voluntary employee and discretionary employer plan contributions. The competitive landscape will become more favourable to employers and employees, because new providers will serve the market for voluntary retirement funds. In addition to the traditional providers operating within Chile s social security framework there will be mutual funds, life insurance companies, banks and financial institutions that will market retirement fund products. Vesting Individual Voluntary Saving s Plans: full and immediate vesting, but subject to special tax if withdrawals are made before retirement age. Collective Voluntary Pensions Savings Plans: vesting is a maximum of 24 months, after that period it is the same as for Individual Plans. Disability There is very little long-term disability business written in the Chilean market since only the larger and multinational companies have such schemes. The benefit will normally pay the difference between what the state pays and the employee s salary. Death Most employers provide group life insurance for all their employees. A typical group life plan covers either 24 or 36 times monthly salary. Accidental death and dismemberment may be included as a rider. Sickness Employers often provide additional sickness benefits through special funds, which are also used to provide other forms of non-cash compensation. Also some companies provide group insurance aimed at compensating for the difference between the current salary and the social security compensation. Employee Reference Manual 2015-2016 - 12 - Swiss Life Network
Medical/Health Contributions Employees as well as independent workers may choose to leave FONASA and join the Private Health Institutions System (ISAPRE). The principal difference between the members of each system is their level of earned income, which is higher in the case of ISAPRE. For employees the minimum contribution is 7% of monthly income. However, the total contribution depends on the plan the employee chooses with ISAPRE. The employer is responsible for deducting the contribution agreed between ISAPRE and the employee and transferring it monthly to ISAPRE. There are no employer health contributions. In Chile most large and many medium sized companies provide health insurance programmes for their employees. Such insurance may be contributory or non-contributory. The main cover is to reimburse the employee a percentage (usually 60% - 70%) of the cost of medical care over and above the coverage provided by social security. The coverage plan agreed upon between an employee or independent worker and ISAPRE establishes the medical services covered and percentages for reimbursement of both parties. Usually the percentages vary between 60% and 100% of the medical service cost, with maximum upper limits defined for each service. The upper limits are determined by ISAPRE as a function of FONASA s Book of Rates. The compensation and upper limits depend on the monthly contribution (price) of the coverage plan. Plans are normally renewed automatically each year and cover in- and outpatient medical treatment, preventive medicine and sickness pay insurance. It is not uncommon to find multinational companies that offer additional health coverage to the obligatory health care system. Co-insurance usually applies. Taxation Contributions Employee contributions for the provision of voluntary retirement, survivors, and disability benefits are taxdeductible. Employee contributions to a private health system are fully deductible up to 7% of the social security ceiling of 73.2 UF. Health insurance premiums are fully taxable. Employer contributions for benefits that complement Social Security (life, health, pensions, etc.) are fully taxdeductible. Residents of Chile are subject to tax on all income, including pensions, regardless of its source. The tax rates are progressive and range from 4% to 40%. Employee Reference Manual 2015-2016 - 13 - Swiss Life Network
Other Information Pension fund administrators are strictly regulated and their investments supervised to ensure an investment return to the benefit of the account holder. If an employee chooses the scheduled withdrawal option, that person assumes the risk of losses due to a fluctuating rate of return. Strict regulations apply to the amount of reserves required for the different types of insurance. Minimum mathematical reserves are calculated at a technical interest rate of 3% and according to actuarial formula and government-approved mortality tables. Double Taxation Agreements Austria, Australia, Belgium, Brazil, Canada, Colombia, Croatia, Denmark, Ecuador, France, Ireland, Korea (Republic), Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, Russia, South Africa, Spain, Sweden, Switzerland, Thailand, the United Kingdom and the United States of America. Employee Reference Manual 2015-2016 - 14 - Swiss Life Network