Status: 06-12-2020

After several rounds of negotiations in the Chilean Parliament, a second AFP withdrawal has been approved. This was published as law today, Thursday 10th of December 2020.

EBG and MEFE Consult have teamed up to summarise everything you need to know and everything you need to do relating to this new development. Please contact us here if you would like a more personal conversation.

What you need to know

There are some changes to the first round (review previous article) which includes the following adjustments:

1) You can access 10% of total funds in your AFP tax-free and at zero cost if your average monthly income level is under $1.5 million pesos (30 UTA-unidades tributarias anuales).

If your (average) monthly income is above $ 1.5 million pesos and you request the additional 10% payout then this withdrawal will be taxed as income. If you make the request during December 2020, you will be charged income tax in your 2021 tax declaration (April 2021). If you do not request the withdrawal until 2021, you will be charged at the tax declaration in 2022. The AFP does not deduct the taxes automatically. It will apply to SII during the tax declaration of the corresponding year.

You can see what level of tax this would mean for you by looking at the Chilean tax tables. If you would like a review of your personal tax position and how you could improve things – contact us here

What remains unmodified is the minimum/maximum amount of funds retrieval of 35/150 UF respectively. The payment conditions did improve to a maximum of 20 working days (in case you get two deposits).

* Calculated amounts according to UF value by December 7th 2020 ($29.077,46)

2) Anyone who still has funds in the Chilean AFP system is entitled to make use of the second 10% withdrawal. This includes foreigners with pending visa status, people already in retirement and people who have already left the country.

Accessing the second 10% withdrawal does not impact subsequent full fund retrieval under the Chilean law 18.156 for professional technical foreigners (assuming you fulfill the requirements). You just have to do a step-by-step approach and cannot submit the different requests at the same time. This second retrieval can be done within the following 365 days after publication as law.

3) Total payout will take place within a maximum of 20 working days after your request. If the payout amount is less than 35 UF, you will receive your money in one transfer. The AFP company has to respond officially within 4 working days after submission with an acceptance or rejection.

If you are a foreigner and have already left Chile (with no current bank account in Chile), you can make a submission through your local Chilean consulate. The AFP will deposit your funds in your local bank account (using Transerwise; no extra bank deposit charges will apply to you). You can find the correct form here

4) If you have not yet requested your first 10% withdrawal, you can make both submissions at the same time but will need to complete two different forms at your AFP. If you only want to request one type, you need to select which 10% retrieval you want to access (first or second withdrawal).

5) The process is free of charge and does not require any intermediary. The only difference to the first 10% request is that you will need to insert your Chilean ID (RUT/Carnet) and its serial number, your email, phone number and bank account details two separate times.

Please use online forms (web or call center) and take into account that the web traffic at the AFP websites will likely increase during the first weeks after the law is published. After the first two weeks you will also be able to make the request in person at the AFP offices.

What you need to do – Foreign Nationals

If you are a foreign national, keen to extract your whole AFP fund before retirement – it makes sense to withdraw the first 10% of your fund now, even if you are not under financial pressure. This second 10% is slightly less attractive as the withdrawal will be taxed as income for anyone earning over 1.5m CLP per month.

It is helpful to remember that only those with employment contracts are allowed to make a full withdrawal from the AFP – you can read more about that here

For those planning and able to withdraw their funds before retirement, it probably still makes sense to take the 2nd withdrawal. You will pay tax on a full withdrawal and this process is going to be more straightforward. It will also likely mean you pay less tax in the long run. A smaller withdrawal now is likely to have a lower tax cost for most people – you are adding less money to your taxable income. The same should be true of the subsequent full withdrawal. This depends on your personal tax position. Please contact us here if you would like to discuss and understand options to minimize your tax burden.

For the self-employed and those on boletas – it makes sense to take this withdrawal as there is nothing in the current law to suggest you can withdraw the balance later.

Even though this is unlikely to be a life changing amount of money – these savings were built to provide financial security in your future, so you should carefully consider what you do with this money. It could be a great opportunity to review your overall financial planning and perhaps this article we wrote will help you with some ideas?

Good uses could include clearing high interest debts and loans, adding to an “emergency fund” or opening a more relevant long term investment account. If you would like professional help in building a personalised financial plan then please click here to request a consultation.

For those planning to stay in Chile into retirement, it makes sense to view this in the same way as a Chilean National.

What you need to do – Chilean Nationals

The question is a bit trickier for Chilean nationals or foreign nationals planning to retire in Chile. If you desperately need this money to support yourself and your family now, you should of course access funds for that purpose. If not, you should very carefully consider why you are making a withdrawal that would diminish your long term pension planning.

There is an argument to be made for withdrawing the initial 10% and then replacing that amount into the pension system with tax relief, via an APV contribution for example. This advantage is largely nullified on the second 10% withdrawal for anyone with earnings over 1.5m CLP per month. Your withdrawal would be taxed at your highest marginal tax rate – current tax bands can be found here.

For those earning under the 1.5m CLP per month, you may wish to withdraw funds to clear high interest loans, credit or store card debt. This will give you room to make a proper long term plan. The money you are no longer spending on debt can be re-allocated to building an emergency fund and thereafter to voluntary investments into things such as APV or Cuenta 2. You must first ask yourself – am I disciplined enough to use this money in such a way, or will I choose to spend it on non-essential items?

In any of the above situations – this money is yours and so is the choice. Before making a long term financial decision just be certain to consider why you are making the withdrawal. Our article on financial behaviour may be a great thing to read before taking the next step.
Next steps (how to prepare for the 10% retrieval)

➢  Check online which AFP you are associated with this link.

➢  Get your RUT-Card (as you need the serial number) or NIC (número de identificación para Cotización) which is the temporary number assigned by the AFP until your RUT-Card is issued

➢  Choose the payment method: preferentially into your bank account in Chile or by cheque (“vale vista” that you cash at Sencillito/Servipag). You can also choose to have the funds paid into your secondary (Cuenta 2) investment account at your AFP (the amount will be exempt from their commission/fee) or to the “Caja de compensación” in Chile.

➢  The online form needs some personal information such as your phone number, address and email.

➢  You should receive official notice (by phone/email) from your AFP about the amount payable and status of your request within 3 working days of submission.

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