They present a bill for the self-loan of AFP funds and then return them: what does it consist of?

Thousands of members of private pension funds are awaiting the next debate on the bills seeking a seventh AFP withdrawal, which could be restarted in the Economic Commission of the Congress of the Republic in the coming weeks. Although a consensus has not been achieved among legislators so far, there is another alternative to take into account.

It turns out that Congressman José Elías from Podemos Peru presented a bill for self-loan of pension funds, which will allow citizens to release an amount from their Individual Capitalization Accounts (CIC) to repay them later. Next, he reviews the scope of this proposal that is already being applied in other countries.

AFP self-loan: what is this bill about?

Last Tuesday, March 5, parliamentarian José Elías of Podemos Perú presented legislative proposal No. 7187/2023-CR that seeks to authorize AFP members to withdraw money from their accounts with the obligation to return it later. For this, an interest rate will be set and certain conditions established in this standard will be met:

• Affiliates of the Private Pension System may request a withdrawal of up to 40% of the funds accumulated in their own CIC, either in person or virtually.
• The delivery of the loaned money will be made within a maximum period of 15 calendar days, counted from the presentation of the request to the AFP to which the affiliate belongs.
• The self-loan of AFP funds will have an interest rate of 0%.

How will the return of the AFP self-loan be? This is what the bill says

According to article 4 of the PL of Congressman José Elías of Podemos Perú, the repayment of the loan will be carried out through the payment of installments calculated at 2% of the salaries and taxable income of the members, and the payment will be made from the first day of the month following the request.

“The loan payment is made each month in which the member contributes as a dependent or independent worker, until the month in which the total debt is paid. In the case of members subject to fifth category income, the loan payment will be made by the employer simultaneously with the payment of mandatory contributions,” reads this legislative initiative.

It is worth mentioning that affiliates who have this self-loan in force will not be able to request another one until it is fully repaid. In the event that they request the retirement pension due to legal age or the early modality, without having completed the return, this amount is calculated with the balance they have in their CIC.

Finally, in those who obtain a disability pension or die, the balance they have at the time of the accident or retirement must be considered so that it can be collected by their legal heirs.

AFP self-loan: in which other countries does this modality exist?

According to the PL of parliamentarian José Elías, in the United States there is the figure of loans and early withdrawals of savings in the funds. In this regard, the maximum amount that can be requested is 50% of the vested account balance or US$50,000. Generally, the member must pay it quarterly within five years, without being subject to paying taxes, as long as the established time is respected.

On the other hand, in Chile, the members of the People’s Party Caucus and independents of the Chamber of Deputies presented the constitutional reform project that allows self-loaning of up to 15% of pension funds, with the obligation to return the money in 60 installments or up to 5 years, without interest.

However, the Chamber of Deputies rejected this initiative and, in its place, the Government of Gabriel Boric proposed that the self-loan not exceed 5% of what a person saved, with a limit of 30 UF (Unidades de Fomento), equivalent to 1 million 100,000 pesos.