By Antonio De la Jara

By Antonio De la Jara


LIMA (Reuters) - Chilean President Michelle Bachelet's proposal to hike the pension contribution rate by 5 percentage points will cost about $3.8 billion per year, with the state paying $1.5 billion, the government said on Wednesday.


Bachelet announced plans late on Tuesday to have employers pay for a gradual increase in the contribution rate to 15 percent within 10 years to boost payments for retirees and provide minimum pensions for those in need. Self-employed workers would also gradually be required to pay into the system.


"Each percentage point in the contribution rate equals about 0.3 percentage points of GDP, or $765 million," Valdes said at a news conference.


Because the state is one of the biggest employers in the country, the measure will increase the burden on the budget, Valdes said. "The fiscal cost is about 0.5 percent of GDP, about $1.5 billion."


Opponents of Chile's private pension system have staged protests in recent weeks to demand it be dismantled, saying it forces workers to give their earnings to for-profit funds that do not ensure a dignified old age for all Chileans.

Chile's private pension system was started in the 1980s during the dictatorship of Augusto Pinochet. The six private pension funds, known as AFPs, manage some $160 billion in assets.

Bachelet's government promised to forge a "great social pact" with all stakeholders to build consensus for the proposed reforms, ahead of a pot-banging protest against the AFPs scheduled later on Wednesday.

Rodrigo Perez, president of the Association of Administrative Pension Funds of Chile, which represents AFPs, told reporters it looked forward to being part of the debate but warned that some proposed reforms could end up hurting pensions.

Bachelet proposed forcing the AFPs to pay back contributors after periods of losses, giving workers more say on their investment decisions and eliminating hidden fees.

The reforms must be passed by Congress, where there is broad support for boosting pensions.

(Reporting by Antonio de La Jara, Writing by Mitra Taj; Editing by Richard Chang)