Congress proposes to eliminate the AFPs: what will happen to affiliate funds?

Congressman Américo Gonza of Peru Libre has presented a bill to repeal Decree Law No. 25897, which creates the Private Pension Fund Administration System (SPP), made up of the AFP Private Pension Fund Administrators. The low profitability they provide to affiliates is one of the main reasons behind their initiative.

Bill 5795, presented this Friday, September 1, maintains that members of the private system have been affected in different ways. For example, employers do not pay contributions on time, proof of this is that there are more than 750,000 judicial processes and a debt in individual capitalization accounts that exceeds S/22,000 millionis specified in the document.

In addition, the AFPs registered losses in the profitability of the funds in the first four months of 2023, and it is estimated that there is a decrease of S/4,346 million, according to the Superintendency of Banking, Insurance and AFP (SBS). In addition to reports from users who declare that their funds register losses of up to S/7,000.

While workers see their funds dwindle, the AFPs continue to earn through commissions. “In our country, the AFPs charge the highest commissions (17% of 3%), in the region, for managing the funds, which gives them high equity returns, even during the financial crisis. While the affiliates’ pension funds reported large losses, which puts their retirement pension at risk,” it is specified.

What will happen to the funds of AFP affiliates?

With the premise that member funds do not grow as they should and will not be enough for workers to have a decent pension, and that other entities in the financial system would offer higher rates of return, the congressman proposes eliminating the AFP system. In such a way that the accumulated funds are fully returned to the contributors.

The final supplementary provisions of the bill state that the SBS would have a term of 90 days after the promulgation of the norm to establish the operating procedure for the return of funds. While the “full refund” must be made within six months.

The legislative proposal must go through the evaluation of the congressional commissions before reaching the plenary session for debate and voting.