The system required salaried workers to deposit at least 10 per cent of their wages into personal accounts managed by private pension funds.
That created a huge pool of capital that spurred investment and helped produce Chile's perceived economic successes.
Many countries introduced similar systems.
But the private system left out about a third of Chile's workforce, including most of the 1.2 million people who work in its informal economy.
The new state programme is aimed at the self-employed, housewives, street vendors and farmers.
Monthly pensions will start at about $125 and will rise next year to $158, boosting pensioners above the urban poverty level of $95.