Academic journal article Social Security Bulletin

Peruvian Pension Privatization Launched

Academic journal article Social Security Bulletin

Peruvian Pension Privatization Launched

Article excerpt

In July 1993, Peru launched a private pension initiative via the creation of 8 pension fund management companies (AFP's according to the Spanish acronym). The AFP's were designed to administer the country's new program and oversee the transformation from an unfunded social security program to a system of individual capitalization that provides for retirement pensions, along with such ancillary benefits as health care, disability, and survivors' insurance. Details of the original legislation are in "International Updates," Social Security Bulletin, Vol. 55, No. 3 (Fall 1992), p. 79. The new Peruvian pension system is tailored to closely resemble the Chilean program initiated in 1981.

As in the Chilean program of pension privatization, the newly functioning AFP's have initiated costly media campaigns to attract workers away from coverage by the Peruvian Social Security Institute (IPSS). Because of the need to capitalize the business side--the AFP's must turn a profit for their investors, as well as build funds for their future pensioners--it is costly to set up an AFP. The privatization law requires a fairly sizable initial investment (by current Peruvian economic standards) of at least US$650,000. …

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