Pension reform must include informal workers

AFP must adapt to reality

Ignacio Aramburú, CEO of Profuturo AFP

The private pension system has been designed for an entirely formal worker who spends his entire working life on a payroll; The problem is that in Peru you not only have a very large mass on the informal side but even those who are formal, are so at times in their lives. So the system has to adapt to the reality of the country. There are many things that can be done, incentives could be generated so that the informal sector and people who have saved little stay in the system, minimum pension, matching contribution, and the other thing is to continue giving more options (more competition) so that members feel that they have freedom of choice.

Build an effective system

Aldo Ferrini, CEO of AFP Integra

The private system is a component of the pension system, it is very good and effective for formally dependent workers. A person who contributes for many months of their working life will have a replacement rate above what the OECD says of 40%, it will be 60%, the system works. One of the big problems with the pension system we have is that the State ignored its responsibility to build an effective system and that continued in the last 30 years. The system has to be understood as one of social security and define which are the best components.

Bring the AFP closer to the informal sector

Alejandro Pérez-Reyes, COO of Credicorp

We cannot expect the informals to get closer to the AFPs, we must bring the AFPs closer to the informals, to their reality. Nowadays, the person is deducted 10%, which is deposited on a specific date, that does not exist with informal workers, what is 10% of your salary? How much should you deposit? Can you do it in several days? What we propose for the reform is to give a different flexibility to the way in which these people approach the individual capitalization system, but with the incentive of the minimum pension it makes it much more attractive because I am going to at least reach a first step . Hopefully we can take them much higher than the first steps.

There should be no discussion about AFP withdrawals

Mariano Álvarez de la Torre, CEO of AFP Habitat

I believe that investment management will not change until the discussion of withdrawals is eliminated, the fact that six withdrawals have been authorized and a seventh is discussed ends up lowering the price of the portfolio. Withdrawals could be minimized if the minimum pension is tied, which could be similar to that of the ONP (S/500). That would improve the profitability of the system, the coverage, and also the independents, seeing that with 20 years of contributions they can reach the minimum pension, would be motivated to contribute, and there new mechanisms could be implemented, but the important thing here is that Give those powers to the regulator because our law is so rigid that our creativity is very limited.

Change the face of pensions

Alex Contreras, Minister of Economy and Finance

This month we will send the Executive’s pension reform proposal to coordinate and compete with the proposals in Congress, which undoubtedly worry me due to their fiscal impact. Our proposal is multi-pillar, and its central aspects are: universalizing membership from the age of 18, promoting the contribution of independents with voluntary savings mechanisms and increasing coverage. It is a gradual proposal, since we recognize that changing the face of pensions in Peru requires time and significant fiscal effort. The system as it is is not sustainable, we need changes that will reduce costs for the affiliate.

Fiscal resources are limited

Alonso Segura, former Minister of Economy

The problem I see, and which unfortunately will not have a solution, is that one cannot separate a pension reform from its entire labor and productive market structure; it would have to be part of a comprehensive reform. Creating a subsidized universal pension with such a low contribution density and such a high level of informality is going to be costly and will generate perverse incentives that will be very difficult to control. I am not saying that (the reform) should not be done, but the conditions are not necessarily given. We must be very careful that they are very generous universal pensions, without conditions. Resources are limited.

The multi-pillar system is necessary

Diego Macera, director of the IPE

The multi-pillar system is not only an option, it is a necessity. The challenge we have now is how we articulate these components, no one talks about integration; How do we make Pensión 65, which is part of pillar 0, have some type of conversation with what is received from the ONP minimum pension. We have to find these types of complementarities, and close with that space of ONP, pay-as-you-go system, or AFP, private system, because it doesn’t make much sense. Furthermore, we have to find a more sensible way to make the voluntary contribution pillars attractive. Whether through Yape, Plin, electricity bill, water or innovative sources of income.

10% of the EAP will not have a decent pension

José Antonio Blanco, president of the Board of Directors of BTG Pactual

Why make a reform today? First, because today, not even 10% of the EAP will have access to a decent pension. Second, the lack of competition is very important in this new stage of the system. I believe that there are inefficiencies that can be corrected and that would open space for greater competition. The reform should turn the pension system into a platform for financial education. Fourth, we should work on a target pension. Another factor is that modern tools are not being used for independents and informals to access the system. And finally, the change in regulation to allow managers to have different products that are not viable today due to the regulatory framework.