Fall of Fund E: how much the retroactive recalculation cushions the blow to pensions under programmed withdrawal

Last week, the Pensions Superintendence published a circular in which it authorized AFPs, in an unprecedented move, to carry out "extraordinary recalculations" of the pensions of those who retired via programmed withdrawal or temporary income between July and September, upon the pensioner's request, and provided that the resulting value is a higher pension expressed in UF. The recalculation, which will be financed from each person's savings, will be done according to the technical interest rate of programmed withdrawal (TITRP) in effect, which is the indicator published by the regulator and used to determine the amount paid to each retiree under this pension modality: the higher the rate, the higher the pension, but savings are also consumed more quickly. Between July and September, that rate stood at 3.45%, but it then rose and stood at 3.67% in October and November. The latter is the one used today for recalculations. The regulator's announcement came after the controversy over the 10.39% real drop recorded by AFP Fund E through September, which was not offset by an increase in the programmed withdrawal rate, which only rose from the 3.41% it stood at in December to 3.45% in September. That translated into lower pensions for those who retired in recent months, compared to the conditions they would have had at the end of 2025. A representative example of what the recalculation implies is the following: a person with their savings in Fund E, upon retiring via programmed withdrawal in December 2025, would have received a pension of $100, but if they retired in September 2026, they obtained $90. With a retroactive recalculation, they would now receive $92.2. The calculations, based on figures from the superintendence and the CMF (Financial Market Commission), are referential: they depend on each person and the retirement date. That same example, for a person who was in Fund D (which fell 6.4% through September), would imply that instead of the $100 of December 2025, they actually received $94 upon retiring via programmed withdrawal in September; but with a recalculation it would rise to $96.3. The impact on the pension was more limited for those who retired in the preceding months. For example, in July Fund D recorded a 3.1% drop for the year, and a person who retired that month received a pension 2.7% lower than what they would have obtained in December; but with a recalculation their pension would be 0.4% lower compared to the end of 2025. Fund E, meanwhile, fell 5.8% through July, while the pension of someone who retired that month was 5.4% lower versus December, which is reduced to a 3.1% drop with a recalculation. The discussion But this decision on retroactive recalculations has generated debate, with opposing positions. The one who opened the discussion was economist Matías Acevedo: "More pension today... At the cost of how much tomorrow?", he posted on his LinkedIn account. He acknowledged that the superintendence's measure allows for calculating a better pension, but added that this "increase comes out of the retiree's own savings." In that sense, he said that "the recalculation can relieve the retiree today, but the AFP must show how much the present payment increases and how the future trajectory changes under favorable and adverse scenarios. Now, for those who purchased an annuity in those same months, with their pensions hit harder, there will be no option at all. The paradox is that the AFPs took a risky bet; now the retiree must decide how much to advance today, in exchange for tightening their belt tomorrow." In contrast, former Pensions Superintendent Osvaldo Macías considers that the decision the regulator took to allow retroactive calculations is "a good mitigator for those who retired and suffered an adverse effect from the drop in their fund, by updating the programmed withdrawal rate, which has a three-month lag in its updating. In any case, the effects will be positive but not of great magnitude." For his part, former Pensions Superintendent Alejandro Ferreiro considers that this measure "cannot be described" "as short-termist or as a way of manipulating the technical rate to improve the pension in the short term." He explains that what the regulator did is that, "given the volatility of the rate markets, it opts to recalculate the technical rate" more frequently, now on a monthly basis, which in his view is positive. "Given the change, retroactive calculation is exceptionally allowed," he points out. The economist and director of Evidence at Pivotes, Soledad Hormazábal, considers it "positive that this alternative is offered to those who retired or had a recalculation in the months most affected by the losses of the conservative funds. However, it is important to understand that the increase in the pension does not come from a recovery of the savings, but from using a higher technical interest rate, which allows withdrawing a greater proportion of the available balance. Therefore, the benefit of receiving a higher pension today has as its counterpart a lower balance to finance future pensions, if everything else remains constant." The other debate that opened This episode even opened a deeper discussion, about the methodology by which the technical interest rate of programmed withdrawal should be determined. In the LinkedIn post Acevedo made, Matías Estay, manager of studies and financial risks at Penta Vida, responded. "The TITRP consistently estimates returns superior to what the conservative funds earn. Maintaining that, in addition to affecting the pensioner's fund, leads to a worse (suboptimal) decision for whoever retires via programmed withdrawal versus a life annuity. Considering also that in programmed withdrawal you assume all the longevity and market risk. The current rule continues to generate distortions for those who wish to retire," he said. Professor at the UC Institute of Economics, Jaime Casassus, states that "conceptually, the TITRP should reflect market conditions at the time of calculating the programmed withdrawal, also considering people's life expectancy. If interest rates rise, the TITRP should adjust upward, since the balance that remains invested in the AFP can obtain greater future returns, allowing a higher pension to be financed today. The TITRP should be linked mainly to expectations of future returns and not to the historical returns of the funds." On the other hand, Casassus believes that "the comparison with life annuities is not entirely equivalent, because the latter incorporate a longevity insurance, whose cost should translate, all else being equal, into a lower rate." Macías explains that the superintendence made two changes regarding the TITRP, which he considered appropriate: it defined that from now on it will make a monthly update instead of quarterly; but in addition, the new rate is no longer required to exceed 10 basis points to be updated; it will always be done. Both adjustments "aim at greater alignment between changes in the value of Funds D and E and variations in the market interest rate, offsetting negative changes with positive ones. This reduces pension risk, which is what is relevant for the affiliate," he argues. Regarding possible additional improvements that could be made, Macías considers that "the Supreme Decree for calculating the rates applicable to programmed withdrawals could be reviewed, which weights market interest rates at 80% and the historical returns of Funds C, D and E at 20%." In that sense, in his view "only market interest rates should be considered and the historical returns of the funds should be eliminated." For its part, AFP Uno has not issued any comment since the Fund E controversy erupted, but this Thursday it sent a statement explaining that they proposed to the government improving the TITRP calculation formula, in the same sense as Macías argues here. They argued that if this were in effect, the current rate would not be 3.67%, but 4.25%, which would translate into a pension nearly 7% higher. For Hormazábal, it is "essential" that this rate "realistically reflect the returns that the funds where pensioners' savings are invested can obtain. If return assumptions that are too optimistic are used, there is a risk of paying initially higher pensions at the cost of reducing them in the future. Therefore, beyond this exceptional measure, it would be advisable to review the methodology and ensure that it responds to transparent, consistent, and stable technical criteria over time." In short, she maintains that "the recalculation can alleviate the immediate impact, but it does not solve the underlying problem: neither the excessive exposure to risk of the conservative funds nor the need for a robust methodology for calculating pensions." Are you already a subscriber? Log in This article is exclusive to subscribers Subscribe to read it in full and access all our journalism. See plans