AFP in favor of opening the market to lower commissions

In Peru, it is questioned whether the market for AFP It is oligopolistic, because in the 30 years that the private pension system has existed, there are only four companies in charge of managing the funds of 8.9 million workers: AFP Integra —which concentrates the majority of affiliates—, Profuturo AFP, Prima AFP and AFP Habitat —the one that has been operating for the least time.

That is why the Association of Pension Fund Administrators (AAFP) has included, in his proposal to reform the Peruvian pension system, that the market opens to more competitors, which could generate a reduction in commissions for the benefit of users.

“From the industry we have been pushing for several years to increase the number of fund managers so that workers have the freedom to choose under the same rules of the game: separate assets, absolutely intangible funds and, in addition, (implement) the commission for performance ”, he explained Giovanna Prialepresident of the AAFP, during her presentation at the Peru Markets & Investments 2023 conference.

It required?

Prialé told La República that today there is no AFP interested in investing in the Peruvian market due to political and economic instability, added to the fact that there are no “clear rules of the game”.

In this context, to open the market, the Superintendency of Banking and Insurance (SBS) is required to have greater powers, according to the AFP spokesperson, since new pension products and forms of collection will be developed, such as the use of digital wallets.

While Aldo FerriniCEO of AFP Integra, specifies that this will not generate 20 companies operating, since large countries, such as Mexico, have 10, followed by Chile, with 6, and Peru, Colombia and Uruguay, with 4 each.

While competition is healthy, according to jose antonio blancoChairman of the Board of BTG Pactual, it is necessary to give it a more efficient structure and allow all kinds of competitors to enter. How could it be achieved? Consolidating the administrative offices of the AFPs or back office, since today each one walks independently.

In addition, if one thought a little more disruptively, Blanco maintains that a scheme could be created in which the sales force (promoters) are independent and multi-managers, that is, they could offer any of the funds to the workers. “Once the foundations are laid it will be much easier that outside managers enter Peru (…) and the commissions will inevitably have to go down,” he said.

However, the economist Elmer Cuba He said that the first step to promote competition is to expand coverage, so that more workers be part of the system and, secondly, that the regulator periodically informs users of the most relevant information, which allows them to go from one AFP to another with a single click.

It should be remembered that the Ministry of Economy and Finance (MEF), in line with the AFPs, has considered in its proposal to reform the pension system that companies in the financial system, such as banks and municipal savings banks, can also manage the funds, as long as when they meet a “minimum requirements package”.

There are three reform proposals

The Economy Commission managed this year to approve an opinion to reform the pension system, which prioritizes the creation of individual accounts for all Peruvians, eliminating the pay-as-you-go system.

For its part, the Labor Commission also prepared its own document, which emphasizes that the contribution is tripartite, that is, on the part of the worker, employer and the State.

While the MEF was delayed in preparing its initiative, it has promised to present the document to Congress in the fortnight of September. Inclusion is highlighted of independent and informal workers, under a multipillar structure.

reactions

Giovanna Prialé, President of the AAFP

“We are looking for a proposal that is inclusive, viable, and fiscally sustainable in the long term. The Treasury is fundamental, but it should not be a straitjacket that prevents us from thinking about reform.”

Alex Contreras, Minister of Economy and Finance

“(With the proposal), the AFPs they will stop having exclusive management of funds. New players are being incorporated, such as banks and savings banks, this will be key in reducing commissions”.