Chilean Social Security benefits are paid to workers who meet the applicable eligibility standards, including minimum length-of-coverage and recency-of-work requirements.  Under Article 7, if a person has not worked long enough or recently enough to meet the normal eligibility requirements, Chile will add the person's U.S. coverage credits to his or her Chilean credits.  If the person meets the requirements based on combined U.S. and Chilean credits, Chile will pay a pro rata (i.e., partial) benefit that is proportional to the amount of coverage credited under the Chilean system.

CHILEAN SOCIAL SECURITY BENEFITS

Until 1981, Chile had a traditional government-administered social insurance program financed by employer and employee contributions that paid old-age, survivors and disability insurance (OASDI) benefits based on a worker's average earnings and length of coverage.  Legislation effective in 1981 established a new "privatized" system that is State-regulated but administered by the private sector.  Under the new system, employees pay contributions to individual capitalization accounts managed by private investment companies called Pension Fund Administrators.  Benefit amounts depend on the investment yield of the accounts. The new system became mandatory for all employees who entered the labor force after 1982.  Workers who were covered under the old system at the time were given the option of remaining in the old system.  While the great majority of active workers are now covered by the new system, both systems will continue to operate side-by-side until the old system is eventually phased out.  The benefit provisions set forth in Article 7 apply to OASDI benefits under both the old and the new system.

OLD-AGE BENEFITS

New System

Under the new system, old-age benefits are payable to men at age  65 and to women at age 60.  A worker may elect to receive benefits before normal retirement age if he or she will be entitled to a benefit that exceeds certain specified levels.  There are no minimum coverage requirements for entitlement.

Benefit amounts are based on the worker's total contributions to an individual capitalization account plus accrued investment returns.  The Government guarantees a minimum benefit amount for persons who have contributed to their accounts for at least 20 years.  At retirement, a worker may choose to receive periodic withdrawals from his or her account, use the account balance to buy an annuity from a private insurance company or elect a combination of the two.

Old-age benefits under the old system are also payable at age 65 for men and 60 for women, but there is no provision for early retirement.  Eligibility requirements and benefits amounts differ depending on whether the worker was classified as a wage earner or salaried employee.

Wage Earners: Men must have either 1,040 weeks (20 years) of contributions, or 800 weeks of contributions and contributions in one-half of the weeks since initial coverage.  Women must have 520 weeks (10 years) of contributions.  The amount of the old-age pension is earnings-related, i.e., it is based on the length of time the wage earner worked and the level of his or her earnings.  A minimum pension is set by law.

Salaried Persons: Both men and women must have at least 10 years of contributions.  Benefit amounts are earnings-related but the computation formula is different than for wage earners. 

DISABILITY BENEFITS

Chilean disability benefits are payable to persons who have not reached normal retirement age and who have suffered a loss of working capacity due to partial or total disability.

Under the new system, a disability pension is payable to a contributor whose impairment reduces working capacity by at least 50 percent.  For the first 3 years, the disability pension is financed by the AFP, not the worker's individual account.  The benefit amount is based on a percentage of the worker's average earnings during the last 5 years.  After 3 years, if a second decision affirms the worker's disability, an amount necessary to finance the disability pension and future survivors benefits is determined, and paid by the AFP into the worker's account.  The beneficiary then has the same payment options (periodic withdrawals, purchase of an annuity or a combination) as an old-age beneficiary.  A minimum pension is guaranteed by the Government.

Wage Earners: To be eligible under the old system, a wage earner must have a minimum of 50 weeks of contributions, contributions in 40 percent of the weeks during the 5 years preceding disability onset, and contributions in 50 percent of the weeks since initial coverage.  Women are exempt from the third requirement, and all wage earners with more than 400 weeks of contributions are exempt from both the second and third requirements.  A wage earner's disability pension is earnings-related and varies according to the degree of disability.

Salaried Persons: Under the old system salaried employees must have a minimum of 3 years of contributions to be eligible for disability benefits.  Benefit amounts are based on a percentage of the worker's average earnings during the last 5 years and are increased for each year of contributions beyond 20 years. 

SURVIVORS BENEFITS

Survivors benefits are payable to widows, disabled widowers, mothers of deceased workers' children, surviving children and parents.

 New System

Survivors are eligible for benefits if the worker was paying contributions or receiving an old-age or disability pension at the time of death.  Benefit amounts equal a percentage of the deceased worker's old-age or disability pension.

Old System

Wage Earners: For a survivors benefit to be payable, the wage earner must have been receiving an old-age or disability pension at the time of death, or have met the coverage requirements for a disability pension.

Salaried Persons: Survivors are eligible if the deceased was receiving an old-age or disability pension at the time of death or had a minimum of 3 years of contributions.

Survivors of both wage earners and salaried persons receive a benefit equal to a percentage of the deceased worker's average earnings during the last 5 years, or a percentage of the deceased worker's pension.

COST-OF-LIVING-INCREASES

Benefits under the old system are adjusted annually in accordance with changes in the price index.  Under the new system, if a contributor elects to purchase an annuity from an insurance company, the monthly payment remains constant in real terms.  In addition, the minimum benefit amount guaranteed by the State is indexed to the cost of living.

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