IMF Staff Country Reports

This Selected Issues paper focuses on Chile’s pension reform. This paper examines the long-term fiscal sustainability implications of expanding the solidarity pillar through the Minimum Guaranteed Pension (PGU), which represents roughly one-third of the estimated cost of the pension reform. Although the PGU is designed with a tapered benefit structure to reflect differences in individual pension savings, microdata analysis indicates that benefits are effectively untargeted in practice, resulting in a substantial and growing fiscal burden. Using simulations of the future distribution of pension savings under alternative indexation rules and reform scenarios, the analysis evaluates the long-term cost of the current PGU design. The findings suggest that fiscal pressures can be significantly reduced through better targeting of benefits, maintaining a prudent indexation mechanism that avoids automatic convergence with wage growth, and gradually increasing both the statutory retirement age and PGU eligibility age in line with improvements in life expectancy. While these measures have important distributional consequences, the analysis focuses on their contribution to strengthening long-term fiscal sustainability.