Peru takes another stab at major pension reform as AFP bill forced through
Peru’s government has submitted a bill for urgent consideration that establishes a special commission tasked with proposing ways to improve the country’s private and public pension systems.
The commission will look at areas such as sustainability, pension size, coverage and demographics. President Martín Vizcarra (pictured) has previously called for an overhaul.
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The body will comprise representatives of congress, the executive, the central bank and financial services watchdog SBS. The move comes after congress forced a bill into law on Thursday that allows members of the country’s private pension fund managers, or AFPs as they are known, to withdraw up to 25% of their savings.
The maximum is 12,900 soles (US$3,823). Lawmaker Daniel Urresti, in favor of the 25% bill and critical of the AFPs, said it was in response to struggling citizens “finding themselves with no money and no opportunity to work because of the necessary quarantine measures.”
He added that pension reform was a crucial topic that needed addressing. Vizcarra had refused to sign the bill and on Wednesday issued a decree allowing pension savers to withdraw 3,000 soles from their AFP accounts in three tranches to help them weather the COVID-19 crisis. This is on top of an earlier move allowing some savers to take out 2,000 soles. Vizcarra, who has also criticized the AFP system, citing the likes of the commissions charged, warned that allowing savers to withdraw 25% would only cause problems for people upon retirement.
Peru has four AFPs which had around 154bn soles (US$46bn) in assets under management as of the end of March. Pensions agency ONP runs a pay-as-you-go, defined-benefit scheme. Myriad proposed pension reforms have been mulled in congress over the past several years, from tweaks to major changes. In 2016, the country introduced a controversial pension freedom law which allows AFP members to withdraw almost all of their pension savings on retirement.
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