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Peru: the AFPs call on the Executive to call for bidding on the disability and survival insurance premiums

5 September, 2011

Source: Boletín Diario de Seguros de América Latina and www.asociacionafp.com.pe

The president of the Peruvian Association of AFPs, Mrs. Beatriz Merino, announced that some 120,000 self-employed workers could join the Private Pension System (SPP). Within the framework of the reform of the SPP, announced by the Executive, the Pension Administrators (AFPs) said that one of the ways of reducing the monthly salary discounts for workers would be to call for bidding on the disability, survival and burial expenses insurance, for the purpose of achieving the lowest possible commissions in insurance premiums, as currently occurs in Chile.

Hence, the Association of AFPs called on the government to create the legal framework for immediately implementing the bidding process when the contracts with the insurance companies are renewed in October this year; the alternative would be to wait until 2013.

First step of the reform

“One of the serious accusations leveled against the AFPs is that they end up working with the insurance companies of the same business group. A better alternative would be for one or two insurance companies to win through a bidding process, thus neutralizing this accusation. The immediate effect would be to lower the discount on salaries,” explained the president of the AFP trade organization, Mrs. Beatriz Merino.

She explained that the bidding for the insurance would take place parallel to the debate on the reform of the SPP, since the Ministry of Economy and Finance (MEF) has allowed a period of four months for submitting an agreement reached by consensus to the Congress of the Republic. This would entail achieving a reduction of the commissions of the AFPs, considered the highest in Latin America.

Self-employed workers to join the AFPs

The president of the Association of AFPs said that there are between 800,000 and 900,000 self-employed workers, of which 120,000 should naturally join the SPP since they issue fee slips, declare their income and pay their taxes.

Mrs. Merino said that the incorporation of self-employed workers should be gradual and added that informal self-employed workers would not necessarily enter the SPP because the government “has to address the tax issue.”

She pointed out that this process would take about three years, the same amount of time it took in Chile. How would it come about? “As of 2012, they will incorporate 40% of their taxable income; in the second year, over 60%, and in the third year the full 100%,” she explained.

AFP coverage requires incentives

The president of the Association of AFPs, Mrs. Beatriz Merino, said that one way of increasing the coverage of the AFPs would be to offer incentives for capturing more members. She gave as an example the “Bonus per child born live” implemented in Chile, whereby the government donates some 600 dollars to the pension funds of women who contribute to an AFP. And that implies an increase in their pension amounts of between 2% and 7%.

She added that she had proposed this bonus to the Minister of Economy and Finance, Luis Miguel Castilla, since in Chile it had encouraged the majority of women to enroll in the pension system in order to be able to receive the benefit.

Mrs. Merino said that it would be necessary to make instruments more flexible so that the AFPs could invest in infrastructure, since 70% of the investments in Chile are performed by the AFPs, whereas in Peru there are many obstacles.

Regarding the subject matter in reference, you can see the interview of Mrs. Beatriz Merino by the television program “Buenos Dias Peru” here.

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