IMF warns that Chile’s $173bn pension industry is at risk
A joint investigation by the International Monetary Fund (IMF) and the World Bank has found that Chile’s AFP pension fund industry is facing long-term structural issues as a result of a policy allowing pensioners to withdraw large portions of cash from their accounts.
The Financial Sector Stability Assessment conducted by the global financial institutions found that the AFP system was ‘under threat due in part to a series of withdrawals’, and its executive board recommended that continued withdrawals and life annuity recommendations be halted.
‘In addition, pension fund regulation and investment options should be improved to promote long-term investment and minimize excessive portfolio switching,’ the report’s authors said.
They added that since mid-2019 ongoing mutual and pension fund redemptions meant to relieve the economic impact of the pandemic also ‘highlighted some structural liquidity risks.
The report recommended a strengthening of liquidity management for mutual funds and the Chilean central bank’s risk management practices.
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