• 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.

 

• In the case of Peru, six withdrawals were authorized between 2020 and 2022, amounting to a total of approx. US$ 23,524 million (51% of the total value of the funds at the beginning of the pandemic, and 9% of GDP). 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. The analyzes carried out also show that this new withdrawal mainly favors members with higher incomes and with continued employment, so the measure is regressive.

 

• FIAP is firmly convinced that pension reform discussion in any country should address viable and sustainable options. It makes no sense to maintain or return to PAYGO systems when faced with great demographic challenges, nor to promote the depletion of savings when the great challenge is precisely to promote savings. This process must be conducted by strong institutions and committed governments, preventing fiscal pressures and short-term political advantages from incentivizing the execution of populist reforms that deplete savings, deteriorate the social security system and affect the future well-being of the population.

 

• We urgently call on all political parties, authorities and public policy makers of all countries, not to continue with these constant withdrawals of pension savings that are causing so much harm to workers and their families; to stop the destruction of retirement savings and to prioritize adequate reforms by adopting public policies focusing on the improvement of sustainable, long-term pensions that enable compliance with the essential purpose of a pension system, namely to reduce poverty in old age and provide sufficient pensions that replace a reasonable percentage of the income received while actively employed, with pension options that provide a stable flow of income in retirement.

 

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