Academic journal article Social Security Bulletin

Peru Modifies Its Pension System

Academic journal article Social Security Bulletin

Peru Modifies Its Pension System

Article excerpt

On August 1, 1995, the Peruvian Government made a further step towards privatizing its social security system by closing its public social security pension system (SNP) to new entrants and making enrollment in the private pension system (SPP) mandatory for all those entering the labor force. The SPP had originally been set up as a voluntary system in 1991. Despite attempts to solve the numerous problems of the SPP, the sign-up rate and investment yields were much lower than government projections. (See "Status of Peru's New Private Pension System," Social Security Bulletin, Vol. 58, No. 1 (Spring), 1995, p. 89) The public SNP was declared to be in a state of emergency.

The contribution rates for both systems have changed. Those remaining in the SNP contribute 11 percent of earnings until January 1, 1997, when the rate will rise to 13 percent. To offset the increase, employers must grant a one-time 3.3 percent pay raise. For those in the SPP, rates are reduced to 8 percent of earnings until January 1, 1997, when they will increase to no less than 13 percent. A 1-percent solidarity contribution was eliminated as well as the employee's contribution for Fonavi (housing) and health care. …

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