Challenges and perspectives in pension reform: key debate in Congress

Today in Congress, the debate on the reform of the pension system begins, a topic of vital importance that concerns millions of Peruvians who rely on the Administradoras de Fondos de Pensiones (AFP) system to ensure their well-being in old age. Among the most relevant aspects of this discussion is the possibility of a seventh withdrawal of AFP funds, which worries experts and authorities in the sector. Galantino Gallo, CEO of Prima AFP, has expressed his support for the reform proposal that seeks to create a minimum pension, increase competition, and limit extraordinary withdrawals of funds at the time of retirement. However, he warns about the negative impact that a new withdrawal of funds, driven by some lawmakers, could have on the favorable profitability projections of pension funds. The crisis generated by the pandemic led to the authorization of AFP fund withdrawals to help the vulnerable population, but it was later observed that these resources were used by people with jobs and in a more stable economic situation. This has diverted the original purpose of the withdrawals and has raised concerns about the impact on fund profitability, especially if a seventh withdrawal without restrictions is allowed. The possibility of a new withdrawal of funds, even if limited to certain criteria, could significantly affect the profitability of the funds, especially in a global crisis context that could generate additional pressures on the financial market. In addition, the ability to withdraw up to 95.5% of the fund at the time of retirement poses additional challenges for the sustainability of the pension system. To address these issues, a pension system reform has been proposed that includes a minimum pension to equalize conditions between the public and private systems. This measure aims to benefit more than five million Peruvians at an annual cost of 0.3% of the Gross Domestic Product, providing greater social protection to affiliates. It is expected that the pension system reform will also promote competition and innovation in the sector, reducing fees and improving the satisfaction of affiliates by allowing them to freely choose their fund administrators. However, reaching a consensus on these proposals will be a challenge, given the complexity of the system and the different views that exist on the matter. In conclusion, the discussion on the reform of the pension system and the possibility of new AFP fund withdrawals poses significant challenges to ensure sustainability and equity in the Peruvian pension system. It is crucial that decisions made in this area consider the long-term well-being of affiliates and promote greater social protection for all Peruvians.