Chile Approves Pension Reform Introducing Generational Funds and Tokenization
Chile's pension system, once a model for Latin America, faces challenges due to low replacement rates and distrust of pension administrators (AFPs). Recent reforms aim to address these issues:
- In March 2025, Chile replaced the multifund model with generational funds. This shift aligns investment strategies with age, aiming for more stable outcomes.
- Employer contributions have been added, and the Universal Guaranteed Pension has been boosted to support older adults.
- The reform includes competitive auctions for AFP services every two years to reduce fees and improve efficiency.
The introduction of tokenization is also being explored:
- Tokenization could enhance transparency, reduce costs, and improve liquidity by representing bonds or shares on digital ledgers.
- Chile's Financial Technology Innovation law creates a framework for open finance and crypto firms, supporting initiatives like AUNA Blockchain.
However, crypto investments in pensions remain controversial:
- Current laws do not recognize digital assets as eligible for retirement savings.
- If allowed, exposure should be through regulated ETFs or ETNs with strict caps to mitigate risks.
Further suggestions for building trust and innovation include:
- Performance-based rebates and open pensions platforms for real-time comparisons.
- Testing tokenized fund shares and allowing savings as mortgage collateral to ease intergenerational tensions.
Chile's slow yet cautious approach aims to prevent stagnation while avoiding potential pitfalls in the fast-evolving financial landscape. The success of these reforms could modernize the entire financial infrastructure, but without deeper technological innovation and citizen engagement, the system may remain outdated.