Pension Savings Targets Revealed: How Much Do Chileans Need too Secure Future Income?
SANTIAGO – A new study by Alfredo Cruz & Cía. details the savings required within Chile‘s AFP system to achieve specific pension income levels,as the country debates ongoing pension reforms. The analysis highlights the increasing importance of voluntary savings (APV) to bolster retirement funds in a climate of lower market returns.
According to the consultancy’s calculations, a man saving consistently throughout his working life could possibly reach a pension of $4 million. While few currently maximize savings to the taxable limit (currently UF 87.8, approximately $3.4 million), the study outlines specific savings trajectories.
Here’s a breakdown of estimated savings needed for different pension income goals:
* $750,000 Pension: The report doesn’t explicitly state the savings needed for this level, but implies it requires significant, consistent contributions and leveraging the benefits of compound interest.
* $1.2 Million Pension: The study references scenarios where individuals under study have accumulated savings of $1.2 million, $1.5 million, and $2 million respectively.
* $1.5 Million Pension: Similar to the $1.2 million target, the study presents this as a potential outcome for individuals under analysis.
* $2 Million Pension: Achievable through consistent, maximum taxable contributions over a working life.
The firm’s analysis shows a man contributing the maximum taxable amount from age 25 to 65 could accumulate a pension fund equivalent to UF 112, or approximately $4.4 million. A woman in the same scenario would reach UF 111, slightly less. These calculations are based on a 2025 top income of UF 87.8, a 2% annual growth in the maximum salary (based on the Remuneration Index), and a 3% real profitability on pension and contribution funds, alongside worker contributions of 10%, employer contributions of 4.5%, and a 1.5% pension security bonus.
“Mandatory savings, complemented with an APV initiated early, substantially enhances profitability thanks to the effect of compound interest,” explained Bernardita Infante, head of pension studies at Alfredo Cruz & Cía. The firm estimates APV contributions over 35 years could grow to $42 million, transforming into approximately $62 million due to compound interest – a 55% increase in nominal profitability.
Infante added that the APV is “the most efficient choice, since it delivers a relevant tax benefit: it allows access to a discount on the payment of taxes or, failing that, to an additional fiscal benefit that adds to profitability.”
The study comes as Chile’s pension reform aims to increase retirement income for both current and future retirees. Calculations suggest the replacement rate – currently around 35% – could rise to 53% in an ideal scenario, excluding the solidarity pillar. The need for increased savings is particularly crucial given lower returns in the current financial market. “When profitability is lower, the way to compensate for it is indeed with greater savings,” Infante stated.
