Legal Alert: Pension Reform and Contribution Increase (August 2025)

Author: Cristián Vásquez – Alvarez Abogados

The Pension Reform Law (Law No. 21,735) introduces a new 8.5% employer contribution to Chile’s pension system, to be implemented gradually starting in August 2025.

Gradual increase of employer contributions

Under the transitory provisions of Law 21,735, the new employer contribution will be phased in over nine years, reaching 8.5% of taxable income by 2033.

Implementation schedule:

• Aug 2025 – 1.0%
• Aug 2026 – 3.5%
• Aug 2027 – 4.25%
• Aug 2028 – 5.0%
• Aug 2029 – 5.7%
• Aug 2030 – 6.4%
• Aug 2031 – 7.1%
• Aug 2032 – 7.8%
• Aug 2033 – 8.5%

Allocation of the new contribution

The new 8.5% contribution will be divided as follows:

• 4.5% to the worker’s individual account (AFP).
• 4% to the Autonomous Pension Protection Fund (FAPP), which will finance the new Social Insurance benefits.

Within the FAPP allocation:

• 1% for female life expectancy compensation.
• 1.5% for the Disability and Survivorship Insurance (SIS), now managed by the State.
• 1.5% for the Protected Return Bonus, funding the Years of Contribution Benefit.

New social insurance benefits

Starting January 2026, two benefits will be paid:

Years of Contribution Benefit:

• • 0.1 UF per contributed year (up to 25 years).
  • Requires 20 years of contributions for men, 10 for women.

Women’s Life Expectancy Compensation:

• • Minimum of 0.25 UF.
  • Paid to women retirees aged 65 or older, with proportional benefits for early retirees.

Additional measures

• The Unemployment Insurance coverage gap will be expanded in May 2025.
• The Universal Guaranteed Pension (PGU) will increase to CLP 250,000 in September 2025, starting with retirees aged 82+.
• The first AFP affiliate tender will take place in August 2027, to be repeated biennially.

Recommendation:
Employers should ensure their payroll and pension reporting systems are updated to include the new contribution rate effective August 2025.

For assistance implementing Law No. 21,735, please contact Alvarez Abogados.