IMF: the law allowing the withdrawal of 95.5% of funds "must be repealed"

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25 July 2018

IMF: the law authorizing the withdrawal of 95.5% of funds "must be repealed"

The agency also suggested reducing the "high commissions" of AFPs.

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The International Monetary Fund ( IMF ) asked in its latest report on Peru to eliminate the law that passed in 2016 Congress to allow free disposal until 95 , 5% of retiree contributions to AFP at the age of 65 years. "The 2016 law should be repealed, and further reforms should be designed to improve replacement rates and increase contribution rates in general," said a report prepared as part of the consultation for the year. Article IV with Peru. 19659006] He explained that about 92% of taxpayers who reach the age of 65 have withdrawn the maximum limit of their pensions, which has resulted in an increase in consumption in the short term, but there is Also had a decline in total premiums in 2017 and 2018, since people did not reinvest their funded accounts in retirement products. "Long-term social protection goals will be jeopardized if immediate action is not taken," he warned.

The agency also suggested that the "high commissions" charged by the AFP be removed. According to the Multilateral Agency, this would help increase the replacement rate indicator which refers to the amount that a person charges when she retires compared to the last salary that she was earning. working in the private pension system. "The increase in contributions could also be considered, but could have a negative impact on the formality of work," added the organization chaired by Christine Lagarde in a report. The IMF has raised its Peruvian GDP growth forecast to 4.1% in 2019

With regard to the public system, it is stated that reducing the minimum contribution period by 20 years would allow low-income people to receive a pension and reduce inequality. It should be noted that currently a member of the ONP who has not contributed for 20 years receives no remuneration in return, according to The Republic in 2017 nearly half ONP affiliates found themselves without economic support in

After recalling that pension coverage in Peru is low compared to the region and that replacement rates in public and private pension schemes should be low. be less than 30% in the middle. IMF stated that in the long run, institutional reform should be considered that aims to integrate the private and public pillars, "considering the compensations between adequacy of pensions, coverage and Fiscal Sustainability "

The IMF pointed out that if reforms were to be implemented, replacement rates would still be below the OECD average, so he argued that It would be crucial to communicate realistic expectations to the public. On the other hand, the agency said that members of the public and private pension system contribute an average of four to five months a year during their working lives.