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Uruguay: “Bill of law with modifications to the Pension System is submitted to Congress”

4 October, 2013

Source: www.rafap.com.uy

On October 1, 2013, the Executive Branch submitted a bill of law to Congress with modifications to the Uruguayan Pension System, which aim to provide more options and benefits for workers.

The most important changes are:

1. The creation of a Dual Fund system

The creation of the dual fund system provides greater security to members who are close to retirement, safeguarding their savings in a more protected fund. Thus, workers will have their funds in the Accumulation Fund (the existing fund) for most of their working lives. When they are close to retirement, their savings will be transferred to the Retirement Fund, which has less exposure to market fluctuations, so their savings will be more protected.

2. Revocation of the option for the Mixed System

Makes it possible for workers over 40 on April 1, 1996, to cancel the option of enrollment in the mixed system.

3. Repeal of the option of Article 8 of Law 16.713

Makes it possible for workers between 40 and 50 years of age to rescind the option of Article 8 and distribute their contributions between the Social Security Bank (BPS) and the AFAP. In order to determine in which cases it would be advisable to revoke this article, the BPS will mandatorily provide advisory services upon request, taking into account the work history and the retirement possibilities that the mixed system would provide the worker.

4. Automatic assignment of members and change of Fund Manager

The change seeks to promote the reduction of the commissions charged by the AFAPs by automatically assigning members, i.e. those obligated to enroll but who do not choose an AFAP, to the fund managers with the lowest commissions. Members are currently assigned on the basis of the number of members enrolled in each AFAP, and with the proposed change they will be assigned to the two fund managers that charge the lowest commission in the market.

Members can switch AFAPs with a simpler procedure. This proposal seeks to improve service and encourage the AFAPs to have more offices for attending to members, especially in the interior of the country. It is proposed that members would have to contact only the AFAP they will switch to, without first having to visit the offices of the AFAP of origin, as currently required by the regulations.

5. Re-enrollment of workers in the BPS

The bill of law fills a legal vacuum in relation to retired workers who return to work. It states that they can formally return to work, contributing only to the BPS and continuing to receive their pensions from the AFAP.

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