Reform of the pension system: this is how a new method of fundraising would work

Last May 13, the Congressional Economic Commission approved the opinion that proposes the “Law to modernize the Peruvian Pension System“. This initiative, which brings together 59 law proposals, has the main objective of strengthening the economic stability of Peruvians in their retirement.

One of the projects of this reform is the introduction of the “consumption pension“. This mechanism allows a percentage of citizens’ daily spending to contribute directly to their future financial security. Below, we detail how this collection method would work and what experts think about its viability.

What is the Law to modernize the Peruvian Pension System about?

The main purpose of the reform is to guarantee the economic security of elderly Peruvians. The new unified system will cover both the National Pension System, operated by the ONP, such as the Private Pension System, managed by fund administrators. This will be based on four fundamental pillars: the non-contributory pillar, the semi-contributory, the contributory and the voluntary pillar.

How would the consumption pension work?

There are more than 50 projects that make up the new pension reform, one of them is the consumption pension, which has been promoted by Fuerza Popular and proposes that 1% of the amount of all purchases made on a daily basis and verified by electronic ticket is redirected as a contribution to the pension fund. This mechanism has an annual limit of S/61,800, or 12 UIT, and seeks to establish a sustainable framework for the financial future of retirees.

The measure applies to all Peruvians, whether the person is working or not. An individual account will be created for the unemployed in the Private Pension System (the AFP). While people affiliated with the National Pension System—ONP, the vast majority—will have to open a private CIC to store their contributions.

What do experts think about the consumption pension law?

However, various experts such as Gonzalo Llosa, professor of economics and researcher at the Universidad del Pacífico, have been against this initiative, since “it can unbalance tax collection, even if the measure is restricted only to those who do not contribute.” ”.

Furthermore, it would not generate enough money to create a pension fund. minimum and pensioners would not have enough money. “The contribution would be substantially lower than that obtained from 10% of the gross salarywith the exception of times when durable goods are purchased (the value of which may exceed the monthly income),” adds Gonzalo Llosa.

For his part, Renzo Vidal, university professor and director of the Journal of Economic and Financial Analysis of the Professional School of Economics of the University of San Martín de Porres, talks about the obstacles to the implementation of this project. First, the great informality in the country. As recalled, the rule plans to collect a part of the taxes debited in the payment of goods and services during one day, but businesses should necessarily issue electronic receipts, and that is not the reality.

Secondly, it must be taken into account that several essential products are not recorded with the VAT and this is not contemplated by the regulation. This amount would not be added to the Individual Capitalization Account, even though it is an important part of the budgets of Peruvian families.