Academic journal article Social Security Bulletin

El Salvador to Offer Privatized Social Security

Academic journal article Social Security Bulletin

El Salvador to Offer Privatized Social Security

Article excerpt

In December 1996, El Salvador approved the establishment of a new privatized social security system in which both the employee and the employer will contribute a percentage of earnings plus an administrative fee to an individual account in a pension fund management company (AFP) that invests those monies. The eventual retirement pension will be funded by these contributions plus accrued interest. The new system will begin operation in El Salvador when the Superintendent of Pension Fund Management Companies-the regulatory agency that supervises the individual pension funds-is organized and has authorized the establishment of at least two AFPs. Until the new system is in force, the old social security system remains in effect.

Eligibility for the privatized scheme will be based on age. Men aged 55 or older and women aged 50 or older will remain under the old social security system; men aged 36-54 and women aged 36-49 can choose between the two systems; anyone under age 36 must select an AFP and begin contributing to an individual account. Participation by the selfemployed will be voluntary. Those switching to the new system will receive a transfer certificate representing the value of their contributions into the old system. The government will guarantee the funds for this certificate, which will accrue interest at an annually adjusted rate and be redeemable when eligibility requirements for retirement are met.

Employees in the middle age ranges who wish to remain under the old system have to state their intentions in writing. Those who switch to the new system may select an AFP. If an employee has not made a choice, the employer must designate the AFP that the greatest number of employees has chosen within 1 month; otherwise, the employer will be required to pay all of the contributions out of the company's funds. …

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