On Tuesday, Chile’s President Michelle Bachelet proposed changes to the most radical of all the economic reforms of former dictator Augusto Pinochet – the private pension system which induced protests in the region with one, on Sunday, reaching over 150 000 people in Santiago, according to organizers. The protesters argue that Chile’s six private pension funds, which manage US$160 billion in assets, do not guarantee a dignified old-age and only perpetuate inequality.

In a televised address to the nation, Ms. Bachelet said that for the first time, companies will have to contribute to the system, which until now depended on payments by workers to private savings accounts. She further explained that a new source of funds would come from employers, paying in 5%, on top of the 10% that workers already contribute. The extra payment, introduced gradually over the next 10 years, will go to a so-called solidarity pillar, rather than people’s personal savings accounts, enabling the government to increase current pensions and achieve more equality in future pensions.

Finance Minister Rodrigo Valdes said on Wednesday that the reform, as currently designed, would cost US$1.5 billion, or 0.5% of GDP. The pension funds reached US$176 billion in savings last month, much of which was plowed into local stocks and bonds, cutting financing costs and ending a decades-long dependence on foreign capital.

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Under the dictatorship of Augusto Pinochet in 1980, Chile was one of the first countries to test out the privatization of social security, a model that was later followed by other Latin American countries, such as Peru and Argentina.

The system requires workers to deposit 10 percent of their monthly wage, in addition to an administrative fee, in individual bank accounts managed by private funds, which are supposed to be reinvested in the economy. The final amount of monthly pensions then depend on the funds' return on capital, and on the fluctuating stock market.

The economic “Miracle of Chile” is said to have been caused by this system, although currently, millions of workers are unsatisfied with the miniscule amount of their pension.