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FIAP > Destacados Boletines > The Chair of the Peruvian Association of Private Pension Fund managers, Giovanna Prialé, attended the High Level Conference of the Global Social Protection Week, organized by the International Labour Organization (ILO)

The Chair of the Peruvian Association of Private Pension Fund managers, Giovanna Prialé, attended the High Level Conference of the Global Social Protection Week, organized by the International Labour Organization (ILO)

7 February, 2020

Last November 25, the Chair of the Peruvian Association of Private Pension Fund Managers, Giovanna Prialé, attended the High Level Conference of the Global Social Protection Week, organized by the International Labour Organization (ILO), in Geneva, Switzerland, on behalf of FIAP.

On the occasion, Giovanna participated in the panel “55% of the population is still lacking social protection,” (see the video on Youtube here) sharing her perspective on the role of employers’ organizations and social dialogue in contributing to social security, in a world facing far-reaching global transformation. One of the topics she emphasized was the need for more active participation of the International Organization of Employers (OIE), mainly on the issue of social protection.

The discussion evidenced the prevailing gaps and differences in obtaining universal coverage, and how such differences are most critical in low-income countries. Below is a summary of some of the main points covered:

  1. Proposal for financing pensions using taxes

One of the major issues discussed was the proposal to replace the pension contribution system with a tax-based financing system. In this regard, from the IEO standpoint, we started from the imperative need to recognize access to pensions as a universal right and therefore, the relevance of having different complementary sources of financing for achieving universal coverage.

The OIE argued that the government, employers and workers are responsible for providing pensions, highlighting the importance of focusing the use of taxes on the low-income (vulnerable) population and promoting savings (through behavioral economics tools) to encourage the construction of pensions, through individually-funded accounts, in accordance with the income generating capacity of the population (whether formal or informal). We made special mention of the case of informal workers, proposing a matching contribution system to create awareness of long-term savings, without disregarding the enormous responsibility of constructing a fiscally and financially sustainable pension system.

  1. Misreading the responsibility of the individually-funded system

In the discussion on sustainable pensions, we emphasized that much more intense efforts are required to explain that the individually-funded system does not in any way imply that low-income individuals, with very limited savings capacities, would be capable of building a pension by themselves, without government support. We must make it clear that the individually-funded system makes it possible to earn much more efficient returns on long-term savings, for the purpose of achieving pensions commensurate with the efforts of workers: age at which they start contributing, contribution frequency, income. However, under no circumstances should it be assumed that the State waives its obligation to provide pensions for the lower-income population, since low-income individuals would be unable to access a pension in either an individually-funded or PAYGO system with the money they earn throughout their working lives.

  1. Urgency of specifying fundamental concepts of sustainability and efficiency

In the discussion on how to finance social protection gaps, the OIE placed particular emphasis on the importance of financing pensions without generating a fiscal cost or discouraging the savings capacity of the higher-income population. Likewise, we emphasized the relevance of not losing sight of the importance of promoting economic growth and the generation of adequate employment and incentives for micro-companies to contribute, since without these necessary conditions, it is impossible to consider higher or better pensions.

We also pointed out that we have the opportunity of implementing creative and innovative measures, such as seed capital, a tool that would provide every newborn child with an       individually-funded account, allowing them to access a minimum pension at age 65. This tool is much less fiscally expensive than paying non-contributory pensions from retirement age, since the money in each individual’s account is capitalized over time.

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