He spoke loud and clear. The president of the Central Reserve Bank of Peru (BCRP), Julio Velardespoke about the pension reform that is underway in Peru and the importance of all countries having a pension system to leverage their development.
“The pension system has to be mandatory in all countries, voluntary does not work. In almost all countries it tends to be mandatory because many people do not save. So, it must be mandatory,” explained the banker.
Likewise, he maintained that workers’ contributions should be managed in individual accounts and not in pay-as-you-go schemes because there are increasingly more older adults and fewer young people who can contribute to finance retirees’ pensions.
“Is a pay-as-you-go system or one with individual accounts better?” Velarde asked and argued that most people want it to be in individual accounts. “You can discuss the management later. That is another thing, but the essential thing is that it is mandatory and in individual accounts,” he said.
After expressing that withdrawals from pension funds are weakening the Peruvian pension system, Velarde was categorical in expressing that any country that wants to move forward has to have a pension system.
“Really, we are killing the pension system and there is no country that can move forward without a pension system. One can destroy it, but there must be a substitute. And I believe that any substitute must have the elements that it already had: mandatory and individual accounts,” he added during the presentation of the latest 2025 inflation report.
In addition, he said that among the most important reasons for deciding that pension systems be in individual accounts is population aging, because there are now more older adults than young active workers who can finance retirements.
“Soon there will be an older population, with fewer workers and a large part will not have children, or will have only one child, if one sees the trends that are happening in the world. So, really having savings for old age becomes essential,” he noted.
Indeed, in pay-as-you-go schemes, such as the Pension Normalization Office (ONP), workers’ contributions go to a common pool, where no one has an individual account, and from that all comes the money to cover the pensions of current retirees.
Withdrawals
Regarding the bills that have been presented in the Congress of the Republic to withdraw up to 3 or 4 Tax Tax Units (UIT), the president of BCRP described them as foolish because in the ONP there is no fund, but rather the money of active workers is used to pay pensions.
“The money that is deducted from the members is used to pay the pensions of retirees. They are going to distribute what is not there. These are foolish proposals. The pension of the retiree comes from the contribution of the active worker, so there is no proper fund. If the workers do not pay, there are no pensions,” he concluded.
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