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financial infrastructure, but without deeper technological innovation and citizen engagement, the system may remain outdated.