Germán Alarco: “The (social security) system must be open, not only for the AFPs”

These are key weeks for the future of the pension system in Peru, considering that in Congress the debate of the opinions that seek to reform it is awaited while waiting for the final initiative of the Executive power. In this regard, the researcher Germán Alarco questions the lack of consensus and considers that the pension model should be tripartite: supported by the contributions of employers, the State and workers.

– What impressions does it leave you that from the Congress three projects are gestating to reform the pension system?

—Bad, but they reflect different lines and ideological perspectives. It is difficult to reconcile, but they should try to do it. For obvious reasons, the one developed by the Economy Commission seems to advance, but that of the Labor Commission has, in my opinion, more positive elements. Let us also not forget the work carried out by the Omonte Commission, which also had interesting elements that must be rescued and which was the result of a joint effort.

—Since to date they have not delivered their proposal, do you think that the Executive Branch is being very passive with the debate on the reform?

—Indeed, it is taking longer than it should.

-Do you consider that it is unsustainable to continue with the ONP’s solidarity distribution scheme?

—Not at all, the public system with its solidarity scheme must subsist for that population that so desires. Do not forget that the pension that results, even small, of S/500 per month would not be obtained in any way in an AFP for the income contributed. On the other hand, it should not be forgotten that the Consolidated Pension Reserve Fund (RCF) administered by the Government has had higher returns for contributors than the AFPs for many years.

—But there is still a commitment to end the ONP…

—The elimination of the ONP is an ideological matter, without denying that a deep reengineering must be done, introducing more transparency, better operating rules and good corporate governance with independent directors.

– What conclusions leave you 30 years of the AFP scheme?

—Obviously, their contributions must be recognized, but it is a system that works in societies with extensive consolidated labor markets, of medium and high income. Nothing to do in such an economy informalwith a very high entry and exit of workers from the formal market, to which is added the absurd idea that all contributions must be made by the workers, without the tripartite scheme.

Government seeks to reform the pension system. Photo: diffusion

—And why, despite the questioning of the AFP system, do they have the support of some political sectors?

—It should not be forgotten that the AFPs and their allies are an influential and lobbying group.

—Some propose that 3% of the IGV be captured for pensions, others that Pension 65 be universalized. Which measure is the most appropriate for you?

—It is madness that weakens the spending capacity of the public sector. Do not forget that the Peruvian tax pressure, according to the OECD, is around 16% of the GDP, seven percentage points below the Latin American average. We’re failing to collect about $15 billion a year on that standard.

—Where should the pension reform go in Peru?

—Just remember that the contribution must be tripartite: workers, State and employers, without surcharge the cost of the formal labor payroll. You must incorporate independent workers. There must also be a relevant non-contributory pension, a general pension and one resulting from voluntary contributions. That the system must be open, not only for the AFPs, and that the option of the solidarity-based pension system must be maintained, among other issues.

—He mentioned the low Peruvian tax burden. Any alternative in parallel to the reform?

—The tax pressure can be increased on the side of royalties to the extractive sectors, ecological taxes and, with regard to health, the Selective Consumption Tax on alcohol and gambling, Income Tax up to an international average rate of 35% and taxes on wealth and financial and non-financial wealth.