By: Econ.Wens Silvestre (*) way of discussions arising out of
proposal to move to the workers to "
public pension system" and that "pension
65 ""
be financed with contributions from all workers "natural concern is manifested in all of us members of the private pension system, because they would be proposing, in practice, the confiscation of our savings administered by AFPs. From these lines pose
rather strengthen the private pension system , with measures that allow
lower the cost of the fees currently charged by the AFPs manage our accounts.
The only way to reduce these costs is promoting competition and better regulation of the State .
My proposal is to allow (enable) that banks can manage these funds. A few excerpts from the preamble that I included when I made a bill related to the topic.
fundamentals
By Decree Law 25897, created the Private Pension System (SPP) as an alternative to pension schemes administered by the State, called the National Pension System (NPS .)
The creation of private pension system, aims to contribute to the development and strengthening the social security system in the area of \u200b\u200bpensions and is comprised of Private Administrators of Pension Funds (AFP), which administer the Pension Fund referred to the Law and its affiliates provide mandatory retirement benefits, disability, survivors and funeral expenses.
Article 11 of the Constitution of Peru, guarantees free access to health benefits and pensions through public, private or mixed. It also oversees their efficient operation.
The private pension system has the feature to generate an Individual Capitalization Account, where contributions are deposited monthly mandatory and voluntary the worker, adding the return on accumulated fund management.
The yield obtained by the Administrators of Pension Funds from 1993 to date has had an erratic pattern and does not guarantee the sustainability of individual fund in the long run , due to an irregular trend and high stock market volatility, in the same contributions are invested workers. In both firms the pension fund administrators (AFPs), returns were fabulous, and on average recovered their investment in just 2.5 years, ie, a return on equity of 40% annually.
The Pension Fund Administrators, originally perceived, by the provision of its services, a fee consisting of one or a combination of a commission does not set rates, which are expressed in national currency, a Commission percentage calculated on insurable earnings of affiliate, and a percentage fee on balances under management. All of these fees on the basis of the insurable earnings of affiliate, got about 4% of it, and only 8% was deposited in the CIC in the period January 1995 to December 1997.
From January 1997, such remuneration undergo a change, and are allowed to AFPs to receive for the provision of its services and remuneration freely established, laid down in Article 24 of Decree Law N º 25897, which literally point: "a) For the mandatory contribution to referred to in paragraph a) of Article 30 of this Act, a percentage fee calculated on insurable earnings of the affiliate. The compensation must be implemented by the AFP equally to all its members. However, each AFP can offer reductions in pay of members based on their length of stay or regular trading on the AFP. The Superintendent shall issue regulations on the subject, b) voluntary contributions, a percentage fee calculated on those voluntary contributions, in the case of withdrawal of the same; c) In the case of affiliated persons who have chosen to receive pensions under mode temporary and scheduled retirement income, a fixed fee or percentage of the pension. "
The contributions of workers are affected, not only irregular profitability of their accounts, but because by successive rules were allowed to go to your account only 8% of insurable earnings, when the law required the 10% despite being lower on average 13% of the .
There were years when only 62% of the worker's contributions went to the Individual Capitalization Account, while 38% remained in the AFP for their fees and insurance premium .
Currently a member of an AFP employee, contributes 10% of insurable earnings, deposited in the Individual Capitalization Account, 2.88% are distributed between commissions (1.98%) and insurance ( 0.9%), docked in total 12.88% of salary. Ie is real, only CIC deposited in 77.6% of the discount suffered, Therefore, 15.3% goes to the AFP and 6.9% used to cover insurance.
In these conditions, the minimum return required to compensate for the discount, regardless of insurance, would be 18% during the first year after the deposit. This figure includes only a 3% annual return current.
need to find more options the employee in the financial market, an alternative complementary or supplementary to the private pension system, which becomes an agent to generate real competition in the market for long-term savings pensionable purposes.
is important that pension funds have the collateral needed to obtain a decent retirement for workers contributors.
Article 131 of Law No. 26702 and amendments, states that " saving is made up of all of the deposits of money, in any form, made of natural persons and juridical or foreign companies in the financial system. This includes the acquisition of deposits and debt instruments issued by such companies. Such impositions are protected in the manner prescribed by this Act . "
Article 132 of Law N º 26702, on ways to mitigate the risks to the saver, it is pertinent to their application for the management of savings pensionable purposes.
In that sense, banks domestic financial system can not only ensure greater profitability and stability, lower cost of administering the fund, the Fund would also ensure a bonus, deposit insurance, through the Deposit Insurance Fund (articles 144 º to 157 º of the Financial System Act), which aims to protect the savings of natural persons or legal non-profit, the risk of possible insolvency of any of the companies or financial entities that are members of the Fund.
For all these considerations, it is proposed to empower the Bank, pursuant to the Law of Private Pension System, to manage the pension funds of workers contributors to private pension system.
Probable benefits
If you are granted the right to manage in Business Banking for funds or savings pensionable purposes would be very beneficial to workers belonging to the private pension system by the following reasons:
• First, a fixed annual cost savings for sustainable long-term pension. The banks offer fixed rates averaging 5% annually, and the fund would have a sustained growth over time, and if we got an average rate of inflation of 3% real return would be 2% per year, similar to that obtained by the Private Fund Pensions in Latin America, but in terms of volatility.
• The Deposit Insurance Fund, insures the savings pensionable additional insurance purposes in case of a financial crisis, which would be protected against a possible local or international crisis unlike the AFP, that does not have a guarantee fund for the Funds subject to the whims of the market.
• Not subject to the volatility of the stock market, because the savings deposited in individual bank account, do not invest in stocks, but the bank is responsible for placing credit subjects thoroughly evaluated, democratizing the use of resources in the country to finance.
• Reduction of Commissions and more resources for the Private Pension Fund. The AFPs suffer a necessary adjustment in their income by managing our funds and hence a rationalization of their income received in the last decade due to the inevitable reduction in the collection or payment of fees for administering the fund contributor. This will mean an increase in the Individual Capitalization Account.
• favor the strength of the private pension system, for maintaining the system of individual capitalization account, the worker will have greater confidence if your savings pensionable purposes, is well protected in a banking business.
•
A simulation shows the strong performance that we provide the banking :
• CASE 1
, a worker, whose monthly Insurable Remuneration (RMA) is S /. 1 998.00, has a total discount of S /. 257.34, the AFP PROFUTURO which is distributed as follows: AFP Commission
equivalent to 1.98% S /. 39.56;
Insurance Premium 0.9% equivalent to S /. 17.98;
Individual Capitalization Account
10% S /. 199.8, assuming constant values \u200b\u200bprovides the same amount for 30 years would get a nominal savings of S /. 71 928.00, to a fixed rate of 5% annual interest gain in S /. 163,048.63, as a result the Individual Capitalization Account accumulate in 30 years S /. 234 977.76, a figure that would live only of interest with a monthly pension for life S /. 321.13 a month or so.
• CASE 2: The same worker Case 1, but instead spent only S /. 199.8 to CIC, deposited S /. 229.36 (assuming a flat fee of S /. 10 to give back to the banking business, keeping the insurance premium equal to the average charged by the AFPs), that amount would get a 30-year nominal saving of S /. 82 569.60, subject to an annual fixed rate of 5% interest would win in S /. 187 171.34, as a result the Individual Capitalization Account accumulate in 30 years S /. 269 \u200b\u200b742.24, a figure that would live only of interest with a monthly pension for life S /. 1 516.59 approximately, ie, S /. More than 195.46 in the previous case (14.8% additional revenue) and only improve competition among entities of the private pension system now would join the Banking Companies.
(*) Congressional Advisory
