Minimum pension will be S/600 and cooperatives will raise funds

The reform of the pension system is simmering, after the opinion, of more than 400 pages, which brings together 71 projects, was not addressed in the last session of the Congressional Economic Commission. César Revilla, head of the group in question, alleges that they will seek to “discuss it as soon as possible,” considering that next week will only have three business days.

The market opens: new players, including cooperatives

As of the approval of the pension reform report, the Private Pension Fund Administration System (SPP) will be integrated not only by the AFPs – currently, four in the Peruvian market – but by the bulk of the System’s Companies. Financial System (ESF) contemplated in the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendency of Banking and Insurance (SBS), that is, banks, financial institutions, municipal savings banks, investment banks and even insurance companies, among others.

In this way, contributors who choose to belong to the SPP will be able to choose between these private sector companies, a situation that, in the opinion of the congressmen, will allow greater competition to offer the best returns for workers’ retirement. The entire process must be supervised by the SBS, the standard states.

Savings and credit cooperatives that only operate with their members and that are not authorized to raise resources from the public or operate with third parties of level 2 (amount of assets between S/390,000 and S/334 million 750,000) may also apply to the SPP. level 3 (more than S/ 334 million 750,000), but only to manage funds for “independent workers”.

Free transfer: funds are no longer lost and there could be a double pension

The new pension reform law empowers people affiliated with the National Pension System (SNP) to transfer to the SPP at any time, in accordance with current regulations, having the right to the recognition bonus for the contributions made “plus an adjustment for inflation accumulated”.

Currently, if a person is in ONP and goes to AFP, they leave with nothing, since the recognition bonus was stopped being updated in 2001, a mechanism that recognizes each year of contribution in the SNP to the SPP, and by which the Individual Capitalization Account (CIC) started with that balance.

The change from AFP to ONP is also maintained: they can transfer at any time, as long as they transfer 100% of their CIC and, if they later want to return to the SNP, their pension is calculated “taking all the contributions made” in SNP and SPP “at the time of retirement.”

Another possibility opens up: members of the SNP who transfer to the SPP and who have accredited at least 240 contribution units and whose funds “make it possible to finance a minimum or proportional pension in the SNP”, are guaranteed a pension in the SNP “that does not “It is incompatible with the pension to be received in the SPP.” A double pension, although still “chimerical”, according to ESAN professor, Jorge Guillén.

Free choice between ONP and AFP: it will be mandatory from the age of 18

People affiliated with the National Pension System or the private system (AFP), once the proposed law comes into force, will already be within the reformed pension model. Meanwhile, those over 18 years of age who are not eligible will have to join the public model or the AFP model. If they do not express their will, they will join the private sector, where the majority of affiliates and assets are currently concentrated (see graphs).

At the time, the Labor Commission, chaired by Rosangella Barbarán (Fuerza Popular), proposed that new members only go to the AFP, but the text to be debated these days allows for a choice. Until a few years ago, if the preference was not communicated, it was referred to the SNP; Now, affiliation to the AFP governs if there is no expressed will and the winning administrator of the tender (which gives less commission for managing your funds) will welcome you.

The DNI will be essential as an identification code within the pension system, and for this the Reniec, the ONP and the SBS will issue the necessary provisions for the implementation of the affiliation of beneficiaries.

A minimum pension of S/600, both for the AFP and the ONP

The prediction debated in the Economy Commission also places a floor for pensions, both for the ONP and the AFP. In this way, the minimum retirement and disability pension will be set at S/600, while the pension for orphanhood and widowhood will have a minimum of S/400. But it will only work when it has been contributed for 20 years.

Then comes the breakdown: if the member has contributed between 15 and 20 years, the amount of the minimum pension will be S/400. Finally, if the contribution materialized between 10 and 15 years, an amount of S/300 will be received. In addition, the maximum pension of the ONP, which today is around S/800, could be readjusted to S/1,000 by the Ministry of Economy. Congress expects that this change will come into force on January 1, 2025, and the amount of the system’s minimum pension, in its entirety, would be evaluated every three years.

The general manager of AFP Integra, Aldo Ferrini, explains that the minimum pension, currently existing in the ONP, will become valid for an AFP contributor who “meets the same requirements demanded in the SNP, but who accumulates an insufficient fund to buy a minimum pension.” In that case, it will be the State that makes the difference to achieve a pension.

4 UITs can be withdrawn from the AFP, but it will not be available to everyone

During 2023, a large part of the workers demanded that a seventh withdrawal of savings funds be authorized in the AFP, in order to meet basic needs in the face of the rising cost of living. Dozens of projects, which today feed this opinion, sought to release from 2 UIT to 4 UIT for everyone. It did not prosper and was even conditioned on the success of the pension reform.

Now AFP members who, until November 30, 2023, have not contributed to their Individual Capitalization Accounts (CIC)—because they are unemployed—will be authorized to freely dispose of their savings up to 4 UIT (S/20,600). It will not be applicable to those who qualify for the Early Retirement Regime due to Unemployment.

The National Association of Contributors and Former Contributors of the AFP questions that members are not allowed to freely withdraw money, and they denounce an alleged “lobby” within Congress, since some parliamentarians have backed away from supporting this initiative.

On the other hand, the initiative proposes that members have up to 25% of their savings fund to pay the initial payment or amortize a mortgage loan for a first property and withdraw up to 50% in case they have cancer or a terminal illness.

You can increase your fund every time you go shopping

Referred to as Pension for consumption. It will be the voluntary contribution from the expenses incurred by members in their day-to-day purchases. In total, it will be 1% of the sum of the value of the vouchers issued within each fiscal year. The limit will be 12 UIT (S/61,800) per year. To do this, they must support the payment receipts that contain their ID. In good faith, pensions will be financed at the cost of lower VAT collection.

How will it be accessed? According to the opinion, from the age of 18, and not having an employment relationship, individual consumption pension accounts will be created in the private model. Meanwhile, those already affiliated with the private model will accumulate these contributions in their CIC; while ONP members will open an individual account in the AFP where these contributions will go.

The funds in the individual pension accounts for consumption constitute a resource of the State, of an intangible and non-attachable nature, and cannot be used for any purpose other than pensions. Once retirement has arrived, the consumption pension will cease.

In the opinion of the MEF, tax losses of S/10,056 million per year would be generated. Meanwhile, the Economy Commission alleges that it would reduce evasion by encouraging the issuance of receipts.

The new system would have a multi-pillar approach

The opinion proposes that the pension model have a multi-pillar approach, financed with the mandatory and voluntary savings of Peruvians, State resources and others to be determined. The entire scheme managed by the ONP, the AFP or financial institutions.

For example, the contributory pillar proposes continuing with the contribution rate of 13% for the public scheme (ONP) and 10% for the private ones; while in the non-contributory one, pensions will be financed with the Public Treasury under a solidarity principle, and thus serve people of retirement age who, despite contributing, do not receive anything and also for those who are in a condition of vulnerability, poverty or extreme poverty or suffer from a severe disability.

Meanwhile, with the semi-contributory pillar, a minimum or proportional pension will be given depending on the regime, and the State will complement the resources necessary to provide them. It will be in charge of the ONP. In the voluntary system, everyone enters to manage the contributions for consumption.