The Peruvian Social Protection Commission (CPS) recently submitted a proposal for reforming the pension system.
Although this proposal contains some positive aspects (such as closing down the PAYGO system, which currently competes with the individually funded system, and eliminating the possibility of withdrawing 95.5% of the funds), in FIAP’s opinion it introduces some extremely negative changes for the development and stability of the pension system, fully defeating its purpose.
Some of the changes we consider negative are the following:
- The creation of a centralizing agency, involving the creation of a public or private monopoly solely entrusted with collection, management of accounts and payment of benefits, among other functions. Among other issues, this monopolistic entity entails high political risk, even more so if it is a government agency, because it could use all collected funds for purposes other than pensions.
- The Committee of Notables: It is a clear risk to the interests of members that pension fund investment portfolios are determined by a Committee of Notables elected by the Government (Ministry of Economy and Finance). There is indeed the risk that this Committee would opt for investments pursuing interests other than those of members.
- It complicates the investment mechanism and supposedly involves a reduction in commissions, although this is not entirely clear.
Download FIAP’s report on the main aspects of the proposed reform here.
