For several decades, the individually funded pension systems have proven to be sustainable and have contributed to the development of capital markets and the growth of the countries where they have been implemented.

We are facing the challenge of actively increasing savings to improve pensions, in view of increases in life expectancy and the drop in interest rates, and especially to compensate for the high levels of informality in the region (44% of the workforce on average).

Instead of taking up the gauntlet, many of our member countries are exploring a return to the PAYGO systems, which have led countries with these systems to increasingly incorporate savings mechanisms in their different modalities, due to their unsustainability. In fact, countries that have adopted such mechanisms have tripled from 1999 to date, from 17 to 51.

I.e., in the Latin American region, not only has the urgent need to increase pension savings been ignored (with the sole exception of Mexico, which recently approved increases in its contribution rate), but some countries, such as Chile and Peru, have promoted the depletion of savings through successive early withdrawals of pension funds.

On the one hand, six withdrawals were authorized in Peru, between 2020 and 2022, amounting to a total of approx. US$ 23,524 million¹ (51% of the total value of the funds at the beginning of the pandemic, and 9% of GDP). It is worth mentioning that the first 2 of the 6 withdrawals were authorized by the Executive and were of an exceptional, means-tested, and very limited nature (altogether US$1,337 million), unlike the following four authorized by Congress, with no means-testing, for approx. US$ 22,187 million.  After these six withdrawals, a total of 2 million enrolled members with individually funded accounts with zero balance (mostly lower income individuals) were recorded. Unfortunately, on March 25, the Economic Commission of the Peruvian Congress gave the green light to authorize this seventh withdrawal of workers’ funds, for an amount of up to 4 UIT² (approx. US$ 5,507) for all enrolled members, without exception. This new non-means-tested withdrawal would generate a potential outflow of resources of approx. US$9,089 million (equivalent to 27% of all existing funds), with a total outflow of about US$32,639 million (about 14% of GDP) including the five previous withdrawals. It is estimated that 7 million workers (75% of enrolled members) will be left with zero balance in their accounts, and therefore without resources for accessing a contributory old-age pension. This withdrawal will, in turn, generate a greater financial burden for the State and increase the cost of borrowing, due to the immediate sale of sovereign bonds (19% of the funds of the AFP system are invested in central government instruments), raising the cost of loans for all Peruvians.

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