Government will not observe withdrawal of the 4 AFP UITs: What took precedence in the decision? Three analysts comment on it

• SBS: “With a withdrawal of 4 UIT, the total savings of the system would be returning to 2011 levels”
• Withdrawal of the AFPs: Where are the funds invested and what effects would it have on the financial system?

“The Executive, in today’s Council of Ministers, has analyzed the issue and has decided not to observe this law. […] Basically responding to the high vote that this norm has received in Congress. “We see that it is not appropriate in this case to further delay the promulgation of this rule.”Arista told the press.

With this, the seventh withdrawal of pension funds has been made since 2020 and its publication in El Peruano could occur in the next few hours. Since its publication, the law provides a period of 15 calendar days for the publication of the operating procedure.

The potential outflow of pension funds, as warned by the SBS, exceeds S/30,000 million and would leave 8 million members with zero in their AFP accounts. Furthermore, although the limit is S/20,600, the SBS estimates that the average withdrawal would amount to S/4,800.

The Government’s decision

For political analyst Jeffrey Radzinsky, the decision is framed in a more political than technical scenario.

“The Government is subordinate to Congress and that has been evidenced in multiple cases. This is one more. In fact, Minister Arista himself criticized this law when it was in the process of being drafted and debated. It is true that if the Executive observed the rule, it would still be approved by insistence. However, it is also true that what the Government seeks above all things is the minimum possible friction with Congress.”

Jeffrey Radzinski, Political analyst.

In dialogue with Trade, recalled that this is not the first time that political forces in Congress quickly align themselves against laws that – in most cases – go against technical opinions. Radzinsky also referred to the MEF’s position in this decision. As recalled, the technical opinion of this ministry – which was in line with what was warned by the SBS and the BCR – warned that the measure affected the adequacy of pensions for members.

“The position of the MEF has been weakening for several years. Let us remember that Julio Velarde commented on it a few years ago: ‘The MEF has lost weight’. Indeed, This shows a kind of surrender of the MEF towards the Government itself, but also reflects a sustained drop in the specific weight that the ministry has had for some years.”he added.

Recently, the BCR specified that the release of AFP funds would have an impact on long-term rates in the financial system. “This generates, on the one hand, pressures on local financial markets. On the other hand, liquidity in the local market also decreases, which makes long-term financing for companies difficult. In general, it is a measure that would have an effect on the bond markets”he explained Carlos Montoro, Monetary Policy Manager of the Central Reserve Bank (BCR) in recent audio conference.

Consequences

For César Abanto, partner at the Rodríguez Angobaldo studio, remember that the decision to release pension funds leaves almost all members without savings.

“It is believed that by being 30 or 40 years old, the freed savings can be recovered. That is not true. It is also believed that what is saved in the funds is only for retirement, but it is also for a disability situation. And for this I don’t have to be 65 years old. If this does not happen, what you need as a fund for a decent pension will be insufficient.”

César Abanto, partner of the Rodríguez Angobaldo studio.

The expert also remembers that there is a constitutional ruling that speaks about the intangibility of funds. “Two years ago, the constitutional court issued a ruling on an AFP withdrawal rule in which it was emphatic. It did not dismiss the claim because it occurred in an exceptional situation. That situation no longer exists. And the TC has not denied that pension funds are intangible”adds Abanto.

What does the OECD say? In dialogue with El Comercio, Pablo Antolín, Head of Insurance and Pensions at the OECD, recalled that the OECD recommendation remains the same. “We have two recommendations in the world of pensions based on international practices. In one of them, we say that ‘early access to retirement savings should be a measure of last resort and based on each person’s specific circumstances.’”it states.

Thus, Antolín specifies that an international practice in the face of withdrawal situations has been to regulate in which specific cases the funds can be accessed.

“In terms of early withdrawals, there are basically two groups of countries. There is the group of countries where, before COVID arrived, there was already specific legislation on when, how and under what circumstances an early withdrawal could be made. One country that did this was Mexico. Then, there is another group of countries that, by not having anything legislated when COVID arrived, allowed access. Within that group, countries like Australia and the United States limited access; while countries like Chile and Peru made it universal. Now, Chile stopped this release because they realized the impact on the adequacy of pensions. “Peru, at this time, is the only country that continues to carry out this type of liberation”

Pablo Antolín, Head of Insurance and Pensions of the OECD.