For over 40 years, Chile has been a pioneering force in pension reform. The sweeping changes of the 1980s, which introduced individual capitalization and mandatory contributions managed by private pension administrators (AFPs), transformed retirement saving across Latin America. This system helped develop one of the region’s deepest capital markets, turning Santiago into a financial hub with sought-after sovereign bonds and a vibrant IPO market. However, in recent years, this prestige has faded.
A System Under Strain
From 2015 to 2022, workers faced low self-financed replacement rates, with a median of just 17%. Many grew increasingly distrustful of AFPs, often criticized for high fees and mediocre returns. The situation worsened during the pandemic when Chile’s Congress allowed extraordinary withdrawals from pension funds, resulting in over $50 billion being drained between 2020 and 2021. This was a lifeline for households but a blow to capital markets, leading to decreased liquidity and a slowdown in issuance. What was once considered a stable pool of long-term savings was significantly diminished.
Reforming the Framework
In March 2025, Chile’s Congress approved a significant pension reform, arguably the most comprehensive in years. The reform replaces the “multifund” model with generational funds, aligning investment strategies with demographic profiles rather than market timing. By directing young savers towards equity-heavy portfolios that gradually shift to bonds as they age, economists believe this will reduce mistakes and yield more stable outcomes. Moreover, the reform introduces employer contributions and enhances the Universal Guaranteed Pension, aiming to ensure a minimum pension for older adults regardless of their contribution history to the AFP system.
These changes are designed to boost replacement rates and force AFPs to improve efficiency by auctioning affiliates to the lowest-fee providers every two years, rather than four. Yet, despite these measures, the reform is cautious. While generational funds provide a more rational investment strategy, they may also render savers more passive. Transparency remains limited, switching providers is cumbersome, and engagement is shallow. The risk is that Chile’s pensions may appear modern in form but remain analogue in spirit.
Embracing Tokenization
Amidst these challenges, the promise of tokenization looms large. By representing bonds or shares on digital ledgers, tokenization can deliver faster settlements, lower costs, and greater transparency without altering the asset itself. Europe’s DLT Pilot Regime and Switzerland’s SIX Digital Exchange have already made strides in this area. Chile is not idle. The 2023 Law for Financial Technology Innovation established a framework for open finance and crypto firms. The Santiago Stock Exchange, Central Securities Depository, and telco GTD launched AUNA Blockchain, Latin America’s first corporate blockchain consortium, to test tokenized bonds and shares.
If managed well, tokenization could transform Chile into a regional hub for institutional crypto investment, making initiatives like ScaleX Santiago Venture, CORFO, and Start-Up Chile more dynamic. It promises to lower costs, speed up settlements, enhance transparency, and improve liquidity through fractional ownership. These features could give pensions safer exposure to innovation while nudging Chile’s financial infrastructure toward greater efficiency and global integration.
The Crypto Conundrum
Tokenization aside, the more controversial question is whether Chile’s pension savings might eventually include Bitcoin or other cryptocurrencies. For this to happen, the law must first explicitly recognize digital assets as eligible instruments for retirement savings. The Central Bank would need to approve such moves, and regulators must establish standards for custody, valuation, and risk. Even then, caution is warranted. Direct coin holdings could clash with prudential rules. If exposure is allowed, it should be through regulated ETFs or exchange-traded notes (ETNs), with strict caps to mitigate risk.
Other countries’ experiences offer mixed lessons. Germany allows certain pension vehicles to invest up to 20% in crypto, while New Zealand’s KiwiSaver has dabbled via ETFs. Some US public funds have invested in Bitcoin products. However, Canada’s Ontario Teachers and Quebec’s CDPQ suffered losses in failed ventures like FTX and Celsius. The lesson is clear: prudence must prevail.
Striking a Balance
Chile could forge a balanced path. Tokenized bonds and equities should be treated as equivalent to conventional ones if issued on regulated venues. Crypto exposure, if sanctioned, should be through vetted ETFs or ETNs, initially capped at 1% to understand the market, with potential growth up to 25% of the equity allocation. Licensed custodianship, asset segregation, and insurance must be mandatory, with full disclosure of volatility and risks to inform savers.
Yet, technical fixes alone can’t rebuild trust. Chile’s pension debate is as much about legitimacy as design. Reforms could go further, tying AFP fees to performance, offering “open pensions” platforms for real-time fee and return comparisons, and using sandboxes to test tokenized fund shares and smart contracts. Allowing a portion of savings as mortgage collateral could ease tensions between younger workers and retirees, aligning short-term needs with long-term goals.
Looking Forward
Chile deserves recognition for its ongoing efforts, especially when compared to regional neighbors like Argentina, Brazil, and Mexico, each grappling with their own pension challenges. But the stakes are high. Move too slowly, and capital markets could stagnate; too quickly, and pensions might be caught in crypto storms. The balance between prudence and innovation is delicate.
Generational funds will streamline Chile’s pension portfolios, aligning them with demographics and reducing costly errors. However, without deeper innovation in technology, transparency, and citizen engagement, the system may remain analogue at heart. Pension design today is not just about adjusting contributions or tweaking commissions. It’s about harnessing technology, safeguarding trust, and giving citizens an active role in shaping their financial futures. If Chile manages this balancing act, it could set a new regional standard, catalyzing the modernization of its financial infrastructure. Otherwise, it may find itself due for yet another reform and another crisis of confidence.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
