MEF: currently to receive a pension of S/500 a person must earn S/2,500

During his participation in the Congressional Economic Commissionthe head of the MEF, Alex Contreras, pointed out that the pension reform proposal of the Executive Branch seeks to guarantee a universal pension to cover their main needs once they retire.

The official warned that currently the system is only designed for formal labor markets, despite the fact that 70% of the country is informal; added to the fact that 45% of those over 65 years of age do not receive a pension and only 30% of the EAP actually contribute. Furthermore, members of the Private Pension System (SPP)—read, the AFP—cannot receive a minimum pension, guaranteed by the state, as is the case in the ONP.

Contreras insisted on maintaining a pay-as-you-go approach because currently the average income of Peruvians is not enough to guarantee a minimum pension, which would be S/600.

“The pension reform does not affect formality and informality. We are going to attack with different labor or tax tools (…) why maintain the distribution? Basically, because workers’ income is too low to finance a pension. A solidarity scheme is required. To have a minimum pension of S/500 you should have an income of around S/2,500, which is well above the average salary“he commented.

What are the pillars of the pension system supported by the MEF?

The Executive proposes four pillars for the new pension system:

• Contributory. Includes formal dependent and independent workers.

• Volunteer. With and without a pension purpose, they complement the contributions to the contributory pillar. It includes everyone, even the informal ones. Both groups will have a pension at age 65 if they have sufficient funds (240 contribution units).

If they do not have the funds required by the model, they may voluntarily choose a semi-contributory or non-contributory pillar:

• Semi-contributory. Those from the ONP will receive a minimum pension of S/600 or a special proportional pension; and those from the AFPs — or private, since financial entities will also come into play — will receive S/600 or a proportional amount subject to requirements with their funds plus a complement from the public treasury.
• Non-contributory. If at age 65 a person is poor or vulnerable, they will be given S/300 every two months.