Peru’s government presented legislation to increase competition among private pension funds and reduce their fees by about 30 percent, Finance Minister Miguel Castilla said.
Peru will also seek to subsidize pensions for the country’s lowest earners and require the self-employed to pay into a state or private retirement fund, Castilla said today. The measures are designed to boost the number of pension holders to 50 percent of the working population from 34 percent, he said.
President Ollanta Humala won elections a year ago pledging to give the poorest Peruvians a state pension and reduce fees charged by the country’s four private pension fund administrators. The funds, known as AFPs, need to cut costs and move from salary-based commissions to a “fairer” system of fees based on the size of the workers’ pension savings, Castilla said.
The bill is designed to “boost competition and reduce unnecessary costs that are preventing a greater reduction in fees and act as a barrier to new entrants,” Castilla said.
Prima AFP is the country’s largest pension fund by assets, followed by AFP Integra, AFP Horizonte and Profuturo AFP. Prima is owned by Credicorp Ltd. (BAP), the country’s largest financial services group, while Integra was acquired by Colombia’s Grupo de Inversiones Suramericana last year. Horizonte is a unit of Spain’s Banco Bilbao Vizcaya Argentaria, while Profuturo AFP is a unit of Canada’s Bank of Nova Scotia. (BNS)
Peru’s private pension fund system was founded in 1993 and has 92 billion soles ($34 billion) in assets under management, according to the Andean nation’s financial regulator. The fund managers have 5 million customers, of which 40 percent, or 2.2 million, are actively contributing.
Under the new legislation, fund managers will have to compete in an auction for new customers by offering the lowest commission, Castilla said.