Chilean Congress approved emergency 10% withdrawal from pension funds

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In the context of the Covid-19 pandemic and to mitigate its economic impact, on July 23, 2020, the Chilean Congress approved a constitutional amendment to incorporate a transitory article No. 39 to the Chilean Constitution which authorizes contributors to make a one-time withdrawal of up to 10% of their pension funds.

Who will be eligible to withdraw funds?

The amendment authorizes all contributors of the private pension fund system regulated by D.L. No. 3,500, including retirees, to make withdrawals, with the exception of retirees under the life annuity regime.

How much money can be withdrawn?

The amendment allows the withdrawal of up to 10% of the funds accumulated in the individual capitalization account of each contributor with a cap of 150 UF (US$ 5, 600 approximately) and with a minimum of 35 UF (US$1,300 approximately). Contributors that have less than 35 UF are allowed to withdraw all their savings.

Is the withdrawal taxable?

No, the amendment expressly establishes that the withdrawal of the funds shall not be treated as income or remuneration for all legal purposes. Additionally, the amendment prohibits the withdrawal from having associated administration costs for contributors

When can the withdrawal be made?

Contributors may exercise the right to withdraw their funds within 365 days from the publication of the constitutional amendment and payment must be made in two installments, the first within 10 working days from the request and the second, after 30 days from the first payment. Each installment will have a cap of 75 UF (US$ 2,800 approximately).

After requesting the withdrawal, according to instructions issued by the Superintendence of Pensions, the pension fund managers (“AFPs for its acronyms in Spanish”) can accept or reject the request within 2 working days. Rejections are required to be properly justified.

How will the request be made?

The constitutional amendment establishes that the AFPs must implement a support system to file the withdrawal request, either by digital means, telephone and in person. The Chilean Superintendence of Pensions has instructed the AFPs to implement a single form for this purpose.

Likewise, AFPs must provide contributors with the information on the amount available for withdrawal, the value of the shares in the pension fund and the possibility to make partial withdrawals within the limits allowed by the constitutional amendment, until the 150 UF cap is met during the 365 days period.

Prior to the withdrawal request being confirmed, the contributor must confirm that they know and accept the effects that the withdrawal will have on his future pension.

“El presente Boletín no constituye asesoría legal y el estudio Guerrero Olivos no será responsable por actos u omisiones de terceros basados en la información contenida en él”.

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