Insurers will enter the pension market

After the hangover of the long holiday, the Council of Ministers agreed on Monday, October 9, on the bill to reform the pension system, which, as of the closing of this note, has not yet been sent to Congress.

However, the Minister of Economy and Finance, Alex Contrerashas shed light on the criteria that make up the inexorable pension reconstruction after 30 years of coexistence between the AFP regime and the ONP.

Competition for the good of affiliates

In a market concentrated by the AFPs – where members’ funds deteriorated, but the administrators’ profits reached S/471.3 million in 2022 and exceeded the pre-pandemic level – the green light is given to competition in favor of the AFPs. users.

“New competitors are also being incorporated as potential pension administrators: banks, municipal savings banks, rural savings banks, we are also incorporating insurance companies and investment banks, with the aim of reducing commissions,” Contreras mentioned.

The ESAN Finance professor, Jorge Guillén, a good option apart from the range of entities mentioned It would be a “state AFP” that provides a much lower commission than the current onesmarked by flow and by balance (total fund and salary, respectively).

While Macroconsult partner, Elmer Cuba, considers that “it is not so easy to get more people to compete” because the AFPs do not move by prices; since if that were the case, “everyone would be in the cheapest one.”

Recommends empowering affiliate and allow you to have first-hand information – guaranteed by the SBS – on your profitability and, if you wish, to change on the spot and, therefore, concludes that the main problem of the pension model is the lack of coverage.

Basic pension of S/600 and lock on withdrawals

It should be added that a minimum pension of S/600 would be set for AFP members and ONP to help those older adults who “are still working because their pension is zero,” in the words of Contreras.

It should be added that in the public system the minimum pension is S/500 and in the AFPs, it depends on the years of contributions and is even usually four times less than what we see in the state system.

And, regarding the release of funds from individual accounts in the AFPs, the minister warned that “for every S/1,000 withdrawn early, in practice S/18,000 is lost for retirement,” despite the fact that the request responds to popular clamor. to confront inflation. He believes that it should be limited and reach the unemployed.

And the independent and informal ones?

Guillén maintains that, despite the exhaustion of fiscal space with The boy In addition, it would be viable for the State to allocate funds to cover the contributions of informal and independent workers with “a match” between what a citizen gives and the State to force pension savings.

Minister Alex Contreras announced that his multi-pillar scheme will universalize membership from the age of 18 and will encourage independents – even those of the State as landlords or consultants – with voluntary savings mechanisms under a gradual rhythm since “the system as it is is not sustainable.”

The numbers

• 4 times less than the S/500 of the ONP is the minimum pension in the AFP.
• S/600 would be the minimum pension for retirees from both regimes.