The postponed reform of the pension system: what changes are needed to ensure a dignified old age?

From 2011 to the present, four multisector commissions have been formed to analyze and propose a proposal for a comprehensive reform of the Peruvian pension system. The first three did not obtain the expected results and the last working group presented a bill that served as input to prepare the opinion that is being debated within Parliament.

However, consensus between both powers of the State seems distant. While the majority of congressmen of the Economy Commission approved an opinion to authorize the withdrawal of up to 4 UIT (S/20,600) from the AFPs, leaving aside the pension reform, the Ministry of Economy opposes this seventh disbursement that would generate a output of S/34,000 million. What kind of changes does the pension system need to guarantee a dignified retirement? We analyzed the topic with two specialists.

Pension reform opinion: is it viable?

Over the last decade, there have been numerous attempts to reform the Peruvian pension system through multisector commissions. These sought to generate incentives for independent workers, create a centralizing entity to pay pensions and managers to make the funds profitable, as well as restructure the public pension model through a multiple-pillar design.

None of these four working groups has been able to progress in their original objective and currently there is an opinion proposed by the Congressional Economic Commission that proposes a minimum pension of S/600, for both the AFP and the ONP, the mandatory affiliation of citizens aged 18, the mandatory contribution of independent workers, a consumption pension, among other aspects.

For Álvaro Vidal, professor of Labor and Social Security Law at the PUCP, The opinion proposed by the Economy Commission, chaired by César Revilla, modifies the public pension system based on intergenerational solidarity to convert it into a system of national accounts and privileges the AFPs model. If the affiliation preference is not communicated, citizens over 18 years of age will join the private system.

“By completely eliminating this intergenerational solidarity, they are putting at risk the pensions of more than half a million people who are affiliated with the public system. If you eliminate this financing mechanism, you are leaving it conditional only on what each person can save and what the state grants to be able to pay those pensions. If that ruling were approved as it was presented at the time, we would simply be giving a lifeline to the AFP system,” Vidal said in statements to La República.

For his part, Jorge Guillén, professor at Esan University, He highlighted the proposal to convert the ONP into a state AFP system because it encourages competition and is constitutional. However, he pointed out that the establishment of a universal pension is debatable, since with the high rate of informality it is complex to access it.

“In such an informal world it is a little difficult to access the minimum pension, since with so many withdrawals there are, we have been left with a formal pension universe of 20% of the EAP, if not less. Furthermore, talks about the introduction of a state AFP, which seems to me to be one of the best options that would bring us closer to the Chilean case, in which there is not only ONP, but AFPs and they compete,” he said.

Pension system reform: what changes are needed?

The failed attempts to reform the pension system based on the individual capitalization scheme of the AFPs have forced the debate to restart in the Congress of the Republic. Last Thursday, April 4, the Minister of Economy and Finance, José Arista, expressed his points of disagreement with the opinion of said working group related to the minimum pension for members who made AFP withdrawals, the proposal for a pension for consumption at the expense of the State, the disbursement of up to 50% of funds for the payment of a mortgage loan and the creation of national accounts.

For lawyer Álvaro Vidal, successful pension reform experiences need to go through a social consensus that includes the opinions of policyholders and workers, as well as establishing financing from the employer’s contribution. “We are the only country in Latin America in which there is no employer contribution. In addition, it is important to consider a public guarantee based on solidarity with respect to pensions, not convert it only into a system of accounts as the opinion proposes. Finally, “it needs more transparency in management and effectiveness in the payment of pensions.”he said.

Vidal maintained that organizations such as the World Bank, the International Monetary Fund and the OECD propose mixed pension models or multiple pillars, which have a public base financed with taxes and the State budget, as well as a public pay-as-you-go system and the third floor. It is supported by individual savings. “The basis of the majority of the pension system is public, guaranteed with a tripartite contribution from the State, worker and employer,” he said.

For his part, economist Jorge Guillén emphasizes the importance of changing the pension savings culture chip and pointed out that a good alternative to improve Peru’s pension system would be the creation of a state AFP that begins to compete with the private ones. “The state AFP could help a lot because in the long term the ONP is unsustainable along with non-contributory programs. So, you have to change the pension culture chip a little because that will counteract your future pension”he sentenced.