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FIAP > FIAP Statement – FIAP rejects Bill of Law authorizing members of the Peruvian AFPs to withdraw 95.5% of their contributions
22 April, 2016

FIAP Statement – FIAP rejects Bill of Law authorizing members of the Peruvian AFPs to withdraw 95.5% of their contributions

On Thursday, April 14, 2016, the Congress of the Republic of Peru approved a Bill of Law (1) which, among other measures, authorizes members of the Private Pension System (SPP) who turn 65, or who qualify for the special early retirement system, to choose between receiving a pension or withdrawing up to 95.5% of the funds accumulated in their individually-funded savings account (CIC).

The Bill of Law also allows members to use the accumulated fund for purposes other than financing their pensions, such as guarantees for mortgage loans, early retirement in case of unemployment or terminal illness etc.

With regard to the measures incorporated in the Bill of Law, the International Federation of Pension Fund Administrators, FIAP, states the following:

1.    The proposal that authorizes the withdrawal of up to 95.5% of the CCI fund at the age of retirement is contrary to the fundamental purpose of all pension systems, which is to grant members retiring from working life a suitable, stable and financially sustainable pension flow during retirement.

Given the technical consensus regarding this objective, the proposal can only be understood as a populist measure adopted within the current electoral context. Its ratification will entail a high risk that a significant number of pensioners will spend their funds and be left without resources for funding their pensions, after the mandatory savings efforts imposed on them throughout their active lives. An additional aggravating factor is that they will be completely unprotected in their old age, since they will forfeit the right to receive State benefits.

The proposal is also unconstitutional and will entail a breach of international treaties ratified by the Peruvian State, since it will infringe upon the constitutional principle of inviolability of social security pension funds, and violate the institutional guarantee of social security and the fundamental right to a pension.

The ratification of the proposal could negatively affect more than 540 thousand members who will retire in the next 10 years, withdrawing funds for an estimated amount of PEN 48,036 million (approx. USD 14,667 billion (2)) and remaining without a pension to finance their old age.

2.    Authorization to use 25% of the fund accumulated in the CIC for the down payment on a mortgage loan is a measure that defeats the purpose of the pension funds and is detrimental to the fulfillment of their purpose.

The use of part of the fund accumulated in the CIC for purposes other than the payment of a pension, puts the welfare of the member at risk during retirement, since any eventual inability to pay the loan will entail the execution of the guarantee and the reduction of the old age pension amount. There are other means whereby the pension funds have contributed to a significant growth in the financing of housing in different countries, without compromising the objectives of the pension system.

This proposal also affects the constitutional principle of inviolability of the funds and the fundamental right to a pension.

From the economic standpoint, it is estimated that the measure could entail a reduction of 3% to 12% in the replacement rate, depending on the age at which the mortgage loans is taken out: the closer to the retirement age, the greater the drop in the replacement rate.

3.    The extension of the validity of the early retirement system will also negatively impact the replacement rates of workers who opt for this regime, due to the decrease in their contributions to the individually-funded accounts. This will also involve the early redemption of recognition bonds and, therefore, an increase in public spending.

4.    Among the measures included in the project is the proposal to declare the obligation of employers to pay the pension contributions to the SPP as imprescriptible. This initiative is considered positive, because it will contribute to the recovery of unpaid contributions belonging to members of the system, and increase the pension amounts they can finance.

FIAP expresses its total rejection of the measures included in the Bill of Law, discussed in paragraphs 1, 2 and 3 above, because, under the pretext of benefiting members and pensioners, they will irrevocably infringe upon their social security rights, defeating the purpose of the pension system. These measures can provide greater well-being in the short term, allowing members to make use of social security funds for purposes other than the financing of pensions, but at the cost of reducing or forfeiting the right to a pension and the support of the State in a highly vulnerable stage, such as old age. Thus, pensioners are exposed to a high risk of falling into poverty.

Finally, it is a contradiction that while the law makes it mandatory for all Peruvians to save for financing their pensions, the same law allows them to withdraw all of their accumulated savings on retirement. This measure, on the other hand, goes contrary to the efforts being made in many countries, among them Peru, to follow the guidelines of international agencies for creating a first public pillar to finance the pensions of those who have not been able to save sufficiently to do so through their own efforts.

The Executive criticized the Bill of Law with convincing arguments which were not even discussed by the Economic Commission.

We therefore request the authorities to reconsider the Bill of Law approved by Congress. As noted, these are measures contrary to the Constitution of the Republic of Peru, which, if ratified, must be reviewed by the Constitutional Court. In fact, this Court has pointed out that the right to a pension must be made effective through a periodic payment, to cover contingencies in old age.

FIAP offers its good offices and puts itself at the disposal of the competent bodies to collaborate technically in the discussion.

We are aware that there is room for improvement in the private pension system. We therefore call on the new government to take over the reins of the country, and the Congress of the Republic of Peru to create a commission of experts for drawing up the best proposal for a comprehensive reform of its pension system and not act hastily in a matter so important for Peruvians.

Peru must not become a laboratory for experiments. This law could be the beginning of the end of pensions in Peru, to the detriment of Peruvian workers.

The International Federation of Pension Fund Administrators, FIAP, founded in May, 1996, is an international agency comprising the Associations of Pension Fund Managers of the European and Latin American countries that have incorporated individually-funded savings regimes into their pension systems. To December 2015, there were more than 113 million workers enrolled in FIAP member agencies, accumulating more than US$ 577,635 million in their respective individual accounts.

Santiago, Chile, April 21, 2016


Subscribed by: The Board of Directors of the International Federation of Pension Fund Administrators (FIAP).

  • Mr. Guillermo Arthur – FIAP President
    Pension Fund Administrators Association, Chile.
  • Mr. Santiago Montenegro – FIAP Vice president
    Chairman, Colombian Association of Pension and Unemployment Fund Managers, ASOFONDOS of Colombia, Colombia.
  • Mr. Carlos Noriega – FIAP Vice president
    Chairman of the Mexican Association of Pension Fund Managers, AMAFORE, Mexico.
  • Mr. Rafael Picasso – FIAP Vice president
    Chairman of the Association of Private Pension Fund Administrators, Peru.
  • Mr. Ángel Martinez Aldama – FIAP Vice president
    Chairman of the Spanish Association of Investment and Pension Funds, INVERCO, Spain.

(1) Bill of Law 1282 / 2011-CR.

(2) At the banking system exchange rate published by the SBS (Sale) on 14.04.2016: 1 USD = PEN 3.275).

Attached Files: Download here the FIAP Statement in PDF version

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