What are they taking out of my paycheck? Part One

Recently I’ve had to do very adult things, like sign up for a Retirement Fund. Now you’re probably thinking to yourself, “How responsible to start saving at such a young age!” Well, not so much. You see, here in Chile there’s a wonderful thing called the AFP, or Administradoras de Fondos de Pensiones, or Administrators of Pension Funds. Social Security is privatized, so if you are a contracted employee, by law you must choose an AFP (such as CUPRUM or ProVida or Habitat) which are all privately administered pension funds. There is no automatically deducted Social Security contributions like in the U.S.

Then, every month, 10% of your paycheck is taken out and put into one of these funds with varying interest rates. Within each AFP, there are five funds (lettered A-E) which vary in riskiness. A is the most risky and young professionals put their money in those funds, while E is the least risky and is meant for people about to retire. In addition to the 10% of your monthly pay that they put in the fund, they also take 1.4-2.3% (depending on the AFP) as a fee to administer your account. So on average, you’re giving the AFP around 12% of your monthly pay.

That is no small amount, so I wanted to make absolutely sure that as a foreigner I had to pay. So I went to the Superintendencia de Pensiones (on Morandé between Huerfanos and Augustinas), the body that regulates all AFPs, and asked. They were very pleasant there, and answered all of my questions.

The bad news? Yes, I have to join an AFP. Every contracted worker in Chile has to, regardless of nationality. The okay news? As a foreign professional, I’m allowed to take out my money when I leave the country. The drawback is that I’ll have to pay taxes on it, which can be quite steep depending on how much money you have in the funds.

Also, did you notice how I said foriegn professional? Yes, that’s right. You have to have graduated from college to get your money back. How do I prove that? I have to get my diploma recognized by the Chilean government. I know some of my readers have gone through this process (which if I remember correctly, is kind of a headache), so if anyone has links to previous blog posts, please leave a comment and I’ll link to you.

In addition to the 12% taken out by the AFP, what else is taken out of your paycheck?

1.87% goes to Disability and Survival Insurance if you work for a company with more than 100 employees (not quite sure what this one is…ideas?)
~1% goes to Unemployment Insurance
7% goes to Public Health Insurance (FONASA) OR 7+% goes to Private Health Insurance (ISAPRE) (More on this in Part Two)
10% goes to SII for taxes (Some percentage of this gets returned to you in May)

All in all, you’ll get around 30% of your paycheck taken out. Bummer.


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