Fujimori’s pension reform will continue to benefit the AFPs

Last Tuesday, May 14, the Congressional Economy Commission approved its proposal to reform the pension system—after a month ago they failed in their effort to annex it in the plenary session with the new withdrawal of funds from the AFPs—. The initiative, endorsed and promoted by Fujimori, allows contributions with everyday purchases, opens the door to new competitors and establishes a bonus for migrating to the private model.

Won’t help the poor

The ruling establishes a consumption pension, corresponding to 1% of the sum of payment vouchers issued within a fiscal year. Said purchase must be worth a maximum of S/700, and of the total consumption they set an annual limit of 8 UIT (S/41,200). Under this criterion, they seek that all Peruvians, regardless of whether they are employed or not, nourish their funds with purchases in markets or establishments.

The leader of Fuerza Popular, Keiko Fujimori, also plays this match and defends her heralds tooth and nail. ”It cannot be possible that 80% of Peruvians are outside the pension system. We have a proposal so that 20 million Peruvians, whether they have a job or not, can have a pension,” she said in X.

However, this consumption pension will not benefit those who have the least, since the poorest Peruvians do not buy in formal markets, recalls the former head of Sunat Luis Arias Minaya. Although an annual limit has been placed and it was reduced from 12 to 8 UIT, the proposal is addressed without addressing the structural failure: high evasion and informality. Therefore, it foresees a very reduced impact.

On the contrary, to the detriment of the VAT collection, resources will continue to be provided to the AFPs and the new private administrators, adds Arias Minaya, who also considers “a mistake” that fiscal resources are allocated to people with the capacity to save. .

No solidarity approach

The text assures that the reform gives life to a universal, supportive and progressive pension system, but, according to the professor of Economics at the Universidad del Pacífico Noelia Bernal, it has nothing supportive and lacks a comprehensive nature because it does not address the most vulnerable population with taxes collected from the richest.

For example, the minimum pension, which ONP members already enjoy, would be S/600 for members of any of the AFPs, as long as they have contributed at least 20 years. If the accumulated fund is not enough to cover the minimum pension payments, the lack would be covered by the State. Those who do not meet that criterion can receive a proportional pension, but they must still have a 10-year floor. The minimum pension will be accessed as long as not a single sol has been withdrawn from the funds.

For Bernal, although the existence of a social security floor in a contributory pension is ideal, this minimum pension should be designed in a comprehensive reform and not in a chaotic scheme. “Let’s integrate the two systems, have a new pillar system and where there is not a private system and a national pension system, but a single system, let’s design a good minimum pension based on the years contributed,” he maintains.

Entrepreneurs obliged to contribute

Another of the changes introduced by the ruling is the mandatory contribution of workers who receive income from fourth or fifth category income with a withholding from 2% in the first year, until gradually reaching 5% with the objective that everyone can receive a pension.

Álvaro Vidal, professor of the Department of Economics at the PUCP, does not consider it viable because the level of income of independents is lower than that of dependents; and as Arias Minaya mentioned, the heavy presence of informal workers—almost 90% of mypes, according to Sunat—makes the task difficult.

Vidal argues that the reform of the Economy Commission “basically throws a lifeline to the AFPs in order to increase costs not only for dependent workers, but also for independent workers.” Meanwhile, Bernal recognizes that, although the self-employed total a group of up to 100,000 people, it is a good sign that they begin to contribute to their pensions and even sees it prudent for the rate to gradually equal 13% of formal employees.

Notional accounts and bonus for migrating to the AFP

The creation of notional accounts in the ONP is also given a white start so that each retiree has a pension according to their contributions. In 2030, at the latest, it should be finalized. According to the opinion, an actuarial formula would be applied with the worker’s payments and the remaining life expectancy at the time of retirement.

According to labor activist Fernando Cuadros Luque, it can be interpreted as the conversion of a public AFP and we would be moving away from the principles of social security by ending the ONP common fund scheme.

Likewise, they propose the delivery of a recognition bonus in the event that a member decides to migrate from the ONP to the AFP. The Ministry of Economy and Finance (MEF) foresees a fiscal cost of S/581 million only during the first year of this measure, since it would weaken the already battered national pension system.

Cuadros warns that implementing a new recognition bonus is “nonsense” that would make the ONP disappear; Meanwhile, Vidal points out that the payment of pensions to more than half a million older adults of the national model is at risk and would enlarge the universe of AFP affiliates.

No substantial changes

Approach. Javier Olivera, professor of the Department of Economics of the PUCP

This proposal is not going to fix anything and will worsen tax collection. With the consumption pension, they will deduct 1% of the VAT and only those who can make formal purchases will be helped. It does not reach the food basket of the poorest. Additionally, they do not mention how much they will charge to manage the savings. The money, instead of going to Sunat and spending it on public services, will go to an AFP or company that will earn by managing it. I don’t see any social security anywhere.

The AFP system is being prolonged. There is still a national system and a private one on its side. It is even worse because people will be able to move to the private system and, in the end, the public system will run out of people to support itself and the Government will have to spend more to finance those pensions.

They should have opted to improve the non-contributory pension in programs such as Pensión 65 and have a basic universal pension for everyone. It is not that there is much saving capacity in a country where a third of the population is poor. For this reason, I believe that the pension should come from different financing sources and depending on people’s saving capacity. In the case of notional accounts, these should not be limited only to the general public regime. As they are proposing it now, it is not useful.

I have only read a couple of opinions in favor: from the AFP and the Fujimori group. That’s where you have to draw the line. Any type of reform that comes out of today’s Congress will surely not be good.

Reactions

Noelia Bernal, professor of Economics at the Universidad del Pacífico

“We are not going towards an integrated or multi-pillar system. And it is not solidarity because solidarity means serving the most vulnerable with tax resources from the richest, and that is not seen here.”

Luis Arias Minaya, former head of Sunat

“Keiko and Fuerza Popular sell the idea as if it would benefit 20 million Peruvians, but that is false. It will have a marginal impact. The poorest do not buy in formal markets.”

Other data

By result. Affiliates could choose between a balance or productivity commission. They will be subject to periodic bidding every two years.

Competence. Banks, savings banks, financial institutions and insurance companies will be able to manage the funds.

We would have to live 140 years to “reach” a pension, according to Julio Velarde, president of the BCRP.

Employer contributions are not met

The Fujimori text does not involve employers in the monthly retirement contribution, a fact that contravenes Convention 102 of the International Labor Organization (ILO), which recommends that the cost not be more than 50% for workers. Although the ruling establishes four pillars (see infographic), everything remains in the hands of the State and the worker. “In Peru (what the ILO indicates) is not fulfilled and with this ruling it is even worse,” said Álvaro Vidal.

Thus, dependents will continue to contribute a rate of no less than 13% in the ONP, and in the AFPs 10% of their remuneration destined for their account plus the percentage to finance disability benefits or funeral expenses together with their usual commission.

Aldo Ferrini, general manager of AFP Integra, considers that the reform of the Economy Commission is going in the right direction – except for the seventh withdrawal of savings – although, on more than one occasion, he acknowledged that “they did not see the level of pension that the citizen has” and that they made a mistake by not balancing the commissions they charge for managing the money with the needs of the members.

Here, Arias Minaya alleges that the AFPs have not provided a good service and never adjusted their commissions to the profitability of the contributors, to the point that it must be changed to provide reasonable pensions and expand their coverage.