The Peruvian pension system is the worst in the region, can it be improved? | Pension | rest | AFP | Economy

Given its position, the Peruvian pension system outperforms only two countries in the region and is far behind Chile and Uruguay, very close to being among the top 10 Latin American countries.

Mercer CFA Institute proposes a series of actions for each country that can improve its position in the rankings. Following a reform proposal by the Ministry of Economy and Finance (MEF), management Examined whether the government plan addresses the deficiencies identified by Mercer.

read more: AAFP: “In recent years, it has become ‘fashionable’ to blame AFPs for what is happening to the pension system.”

Back to the region

In this year’s general ranking, Peru received a C grade with a score of 55.5. 2018, the first term considered, was the year it recorded its highest grade to date: 62.4, a score that earned a C+ grade.

However, since then it has remained at 56 points, touching its lowest value in 2021. In this year’s edition, Peru scored the third lowest of the 7 Latin American countries considered for the study (see table).

According to Jorge Espada, managing partner at Valoro Capital, other countries in the region such as Venezuela or Bolivia did not appear in the rankings due to a lack of information. “Creating the codes requires at least publicly available information or the cooperation of organizations that provide reliable information. If it’s not there, it’s not considered.” explains to Management.

As part of his study, Mercer proposes specific improvements to each country’s system. For the Peruvian case, it offers a series of cross-cutting recommendations for the three parts of its analysis.

This includes reducing access to retirement assets before retirement. restIntroduce some mechanism that allows the system members to project their future benefits from year to year or increase the minimum level of support for the poor elderly.

read more: Reduce labor costs and tax systems, as OECD recommendations for Peru.

Structural problem

Mercer’s analysis considers three areas. In the Peruvian case, it is registered in the category of low quality ConsistencyThis includes variables such as roofTotal assets and statistics (see table).

For Gonzalo Llosa, a researcher at the Universidad del Pacífico (UP) Research Center, the reason is structural factors. “Pensions in Peru have not worked well for a long time. Not that we have gone too far back compared to previous readings. The margin has collapsed due to the withdrawal of AFP”, Prima AFP’s former investment strategy manager points out.

For voices consulted by Gestión, the reform proposed by the MEF that the Republican Congress is debating today includes interesting improvements in the system. However, they cannot raise its stability.

“I think the most important thing is coverage. There are variables that reduce the no-fault indicator of ONP or AFP. Financial education is required. There is also the issue of labor costs Ministry of Labour Must attend”, Jorge Guillén, professor of ESAN’s Master’s in Finance, says:

Precisely the lowest variable within Peru’s area of ​​sustainability is the proportion of workers affiliated with the organization. In this regard, Espada explains that some extremes of the MEF proposal affect coverage, but the effect may be masked by other factors.

“Automatic accounts and minimum pensions are incentives, but they are not decisive for entry into the informal 70% system. The rating is limited in coverage because it focuses on formal workers with regular salaries. “Peruvian reality is not like that” Represents the Managing Partner of Valoro Capital.

Llosa attributes informality to Peru’s distance from Chile and Uruguay in the ranking and closer to other countries such as Mexico and Brazil.

“Informality is also a problem in Mexico. They have a similar program with Afores, analogues of the AFPs. In Brazil, lifetime pensions are provided. A large part of those in that group. “It’s clearly not sustainable because they need funding from outside,” He assures.

Today, that Congress is also debating authorizing a seventh rescission of AFP fundingAnalysts are right that the MEF considers the locks to withdraw contributions, although this does not prevent the legislature from continuing to advertise.

“They can still debate that. The limit to the extent to which reasonable withdrawal options are left should be at the constitutional level. That way, Congress would have no justification to encourage others.” Consider the Espada.

One aspect of the MEF reform included opening up the pension market to other actors such as banks and municipal savings banks to promote competition. For this move to increase sustainability, Loza emphasizes the need to balance the needs between existing and new players.

“You can’t have some high regulatory burden and other actors have different standards. Not to defend the AFP, but everyone should have the same rules of the game,” RSays UP Prof.

For Gillen, another pending task is improving the organization’s reputation. “An interesting alternative to this is the state AFP, which provides the same service as its private counterparts, but with lower commissions. That may increase credibility. Many say that the state is a bad administrator, but the best regulators come precisely from the financial system.ESAN Proposes.

About the author

Graduated in Journalism from the Pontifical Catholic University of Peru. Part of the founding team of digital media Sudaka. Experience in Peruvian political, social and economic coverage.

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