For 40 years, Chile has been a pension reform lab. Overhauls in the 1980s saved retirements across Latin America, based on individual capitalization. The essential contributions managed personally by the Pension Manager (AFPS) have built one of the region’s deepest capital markets, transforming the Chilean capital, Santiago, into a regional financial hub. Sovereign debt was sought, and IPOS was plentiful, and foreign investors saw Chile as a model of modernity.
Its prestige has faded ever since. Low exchange rates of personal funds – a median of 17% between 2015 and 2022 – are dissatisfied. The distrust of AFPS, often accused of charging high fees for central returns, has grown. The pandemic then came when Chilean Parliament allowed three extraordinary withdrawals. Over $50 billion was released between 2020 and 2021. This accounts for more than 20% of individual pension funds accumulated by 2019 and 16% of Chile’s 2022 GDP. For households, this was a lifeline. In the case of capital markets, it bursts. It has reduced liquidity, slower issuances, and a shrinking pool of long-term savings, once considered a divine savings reduction.
In March 2025, Congress approved the much-anticipated pension reform, replacing the “multi-fund” model with generational funds. Multifunds are now available to choose from among a variety of risky portfolios, but many affiliates are not equipped and often chasing short-term returns or stuck with discrepancies defaults. New generation funds apply “life cycle investments.” Young savers are placed in equity-heavy portfolios and gradually shift towards bonds as they age. Economists argue that this reduces mistakes and produces more stable results. Regulators see it as common sense. Match your portfolio to demographics rather than market timing.
The reform also adds employer contributions and raises universal guarantee pensions, the state’s financial benefits to guarantee the minimum pension to seniors, whether they are consistently contributing to the private AFP system. Reforms also force competition by auctioning affiliates every two years, not four, to the lowest rate provider. These measures need to increase exchange rates, pressure on AFPS to reduce costs, improve efficiency, and spread risk more equitably.
However, reforms remain cautious. Generation funds make the portfolio more rational, but the savers more passive. Transparency is limited, providers are cumbersome and switch engagement shallow. Its conservatism leaves Chilean pensions modern in form, but risks leaving behind spiritual analogies. Finance is changing rapidly all over the world. Digital wallets, open banking, and tokenization form how capital is raised and invested. The Chilean model could still solve yesterday’s problems with yesterday’s tools, even with generations of funding.
The most promising innovation is tokenization. It represents a bond or stock in a digital ledger. This promises faster settlements, reduced costs and increased transparency without changing the underlying assets. Europe has launched a DLT pilot structure, with six Swiss digital exchanges already having already issued bonds. Chile is not sitting in his hand. In 2023, the Financial Technology Innovation Act created a regulated framework for open finance and crypto companies. Officially launched in 2020, the Santiago Stock Exchange (BCS), Central Securities Depository (DCV), and Telco GTD launched the Auna Blockchain, Latin America’s first corporate blockchain consortium, to test tokenized bonds and stocks. If carefully managed, this shift could turn Chile into a regional hub for institutional crypto investment, making digital savings more dynamic towards startups, with initiatives like Scalex Santiago Venture, Corfo and Start-Up Chile. Tokenization not only reduces costs and speeds up settlements, but also increases transparency, increases liquidity through fractional ownership, and increases market access. These capabilities could be ensuring that pensions are safely exposed to innovation, aiming to improve efficiency and global integration of Chilean financial infrastructure.
What’s more controversial is the code. Can Chilean pension savings ultimately include Bitcoin? Probably not so yet. To do this, the law must be amended to explicitly recognize digital assets as a qualifying tool for investing in retirement savings. The country’s central banks must also approve them, and regulators must implement custody, assessment and risk standards. Still, exposure needs to be careful. Direct Coin Holdings clashes with the Prudential Rules. At the very least, exposure should occur via a regulated ETF or Exchange-Traded Notes (ETN) with explicit legal awareness and strict caps. Other countries’ experiments on crypto investments show interests. Germany allows certain pension vehicles to invest up to 20% in crypto. New Zealand’s Kiwisaver has dabbled in cryptography via ETF. Some US public funds are purchasing Bitcoin products. However, teachers in Ontario, Canada, and CDPQ in Quebec have been greatly lost in failed ventures such as FTX and Celsius. Lesson: Care must win.
Chile was able to balance on double roads. Tokenized bonds and stocks should be treated as traditional equivalents when issued at a regulated venue. In my opinion, exposure to the crypto should only come via ETF or ETN if permitted, and initially capped at 1% to understand the market, but should be allowed to reach at least 25% of the stock allocation. Authorized management, asset separation and insurance are mandatory. Full disclosure of volatility and negative risks must be required to help savers know what is at risk. Such a roadmap will open pensions to innovation without risking stability. Embedding tokenization into mainstream savings could also accelerate the digitalization of Chile’s financial services ecosystem and the establishment of standard banks, brokers and insurance companies.
However, technical fixes alone cannot rebuild trust. The Chilean pension debate is just as relevant to legitimacy as design. Reforms can go further to address this. Performance-based rebates can potentially link AFP fees to results and reward long-term outperformance. The “Open Pension” platform can provide real-time fees and returns to affiliates, reflecting open banking. Sandboxes can test smart contracts with tokenized fund stocks. By allowing savings to be saved as collateral for mortgages, it can ease tensions between young workers who have been locked out of the housing market and retirees who are demanding a higher pension. Also, affiliate marketing needs to make more direct profits. One idea links extraordinary profits to workers’ accounts. When a return breaks the benchmark, the surplus is returned under the supervision of the manager. This will ensure Savers Partners are successful and hold AFPS accountable for performance, not just for scale.
Chile is trustworthy because its neighbors have moved to almost dawdle locations. Argentina is hiding between the state and private management. The Brazilian system is vast, but fragmented. Mexico’s reforms continue to be contested. Chile continues to adapt with caution. But the stakes are high. It’s moving too much, and the capital market risks stagnation that is hunger for long-term savings. If you move too much, your pension can get caught up in a code storm. The balance between prudence and innovation is delicate.
Generation funding will help Chilean pensions refine on paper, adjusting their portfolios to demographics to reduce costly mistakes. However, without deeper innovations in technology, transparency and civic engagement, the system could remain genuinely analog. Today’s pension design is not about adjusting contributions or fine-tune fees. It is about leveraging technology, protecting trust and giving citizens an active role in shaping the future of finance. If Chile manages that balancing act, they can set local standards again. When done correctly, pensions can catalyze the modernization of the entire financial infrastructure. Otherwise, Chile may find themselves in a modern system of shape, but beneath it is creaks, doomed to yet another reform and another crisis of confidence.