Academic journal article Social Security Bulletin

Status of Peru's New Private Pension System

Academic journal article Social Security Bulletin

Status of Peru's New Private Pension System

Article excerpt

Status of Peru's New Private Pension System

In July 1993, Peru established a voluntary system of private pensions in which workers could set up individual capitalization funds in one of eight pension-fund management companies (AFP), as an alternative to the system offered by the Peruvian Social Security Institute. (See, "Peruvian Pension Privatization Launched," Social Security Bulletin , Vol. 56, No. 3 (Fall), 1993, p. 106).

As of November 1994, about 950,000 workers had enrolled in the private pensions system, compared with the government's expectation that 1.5 million workers would sign up within the first 18 months of the program. A year after the start of the operation, all of the new AFP's have shown operating expense losses and four of these AFP's have merged into two companies. This was due in part to the high start-up costs including the extremely expensive cost of television advertising. Profits were not anticipated within the first few years.

At first, the AFP pension-fund investments were limited and profit levels were curtailed. By the end of 1993, 59 percent of AFP funds were put in bank accounts. In August 1994, legislation was enacted permitting a wider range of investments such as stocks and bonds, foreign instruments, and commercial paper. …

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