By Malena Miranda
The ruling that states that AFP affiliates, who have not contributed for more than 12 continuous months, can withdraw all of their pension savings, would affect the performance of pension funds, Prima AFP said.
“In the short term this (the congressional proposal) will have an impact on the assets (of the pension funds),” commented Prima AFP’s Investment Manager, José Larrabure.
“When the previous withdrawals (of pension funds) were approved, three variables allowed the AFPs to have been able to serve the affiliates without having significantly affected the pension funds,” he told the Andean Agency.
First, the Central Reserve Bank (BCR) came out with a repo line to generate temporary liquidity and thus, instead of selling assets, the AFPs take liquidity and can then go out to sell assets in a more phased manner, he said.
Secondly, 90 or 120 days ago the AFPs had many more liquid assets abroad than they currently have, because they had to be used, temporarily affecting the ideal composition of pension funds in order to rebuild them in the next six months, he said.
However, if there were new withdrawals from the pension funds of the AFPs, this recomposition probably would not happen in that period, he said.
In addition, it must be considered that in the second quarter there was enormous liquidity in the markets that allowed a rapid recovery in the value of assets, together with greater interest and income from investors to emerging markets, including Peru, he mentioned.
“That allowed the demand (for assets) to have recovered quickly and we could get buyers,” he added.
Larrabure stated that these conditions would not necessarily be repeated in the coming months due to the existing risks in the world of second waves of coronavirus or covid-19 infections, in addition to the next elections in the United States.
He commented that if this congressional proposal is approved, perhaps the BCR will come out again with repo lines for the pension funds of the affiliates, but the pension funds are not in the same liquidity situation as three months ago.
To this is added that it is not known if investors would continue to have the same investment interest in assets that the AFPs have today or if they will withdraw while waiting for the pension managers to sell (their assets) at lower prices, he said. .
It should be noted that the Consumer Defense Commission of the Congress of the Republic approved last Thursday the opinion that proposes that members of the Private Pension Fund Administrators (AFP) who do not register contributions for more than 12 consecutive months, can voluntarily withdraw up to 100% of the total of your funds accumulated in your Individual Capitalization Account.
Fiscal and social problem
He then argued that between 20,000 to 25,000 million soles would leave the SPP, apart from the more than 20,000 million that already came out with the provisions of recent months (due to pandemic).
This congressional initiative will cause a large percentage of the population to be left without a pension for their old age in the long term, generating a social problem for families and an unmanageable fiscal problem for the State, he said.
The latter because Pension 65 with some 500,000 people is manageable, but with four million people it would no longer be (manageable) and would require debt, he said.
He pointed out that people contribute for three or four years, then they stop doing so because they become independent or informal, but later they return to the SPP, so it is simple to think that a person who has not contributed for 12 (consecutive) months cannot Build up a pension fund for your retirement.
“This could be if (the member) has not contributed 10 years and is already over 45 years old, because he probably will not get a pension, or if he has less than 50,000 soles in his pension fund. In these criteria, the option to debate the retirement of pension savings could be opened ”, he commented.
But opening the possibility of withdrawing all pension funds to 25-year-old members, to people with pension savings of one million soles, to people who have not contributed for 12 months, but who have been doing so frequently, is lacking. meaningful because it will create a fiscal and social problem for the country, he stressed.
In addition, there is already a Special Commission (in Congress) for the comprehensive reform of the Peruvian pension system, he pointed out.
What does the opinion of the Consumer Commission say?
The opinion approved in the Consumer Commission of Congress proposes that members of the SPP who do not register contributions for more than 12 consecutive months, can voluntarily withdraw up to 100% of the total of their accumulated funds in their Individual Capitalization Account.
Furthermore, for affiliates who have stopped making contributions since the beginning of the state of emergency, the exceptional withdrawal of up to 1 UIT is authorized in a complementary manner to those provided in Law 31017 and DU 034-2020 and 038-2020.
It also proposes that for former contributors who have not made contributions for more than 12 months and whose accumulated fund in their CIC, on the date the application is submitted, is equal to or less than 10,000 soles, they may request the withdrawal of 100% of their background.
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– Andean Agency (@Agencia_Andina) August 9, 2020