In recent months, the Pension Fund Administrators (AFP) have registered a decrease in their profitability, losing a total of S/. 4,346 million so far in 2022. This situation has generated concern in Peruvians since this coincides with the possible withdrawal of up to 4 UIT (S/ 18,400) of savings in AFP funds.
Currently, external and internal factors impact corporate profits and cause the markets to reduce their profitability, thus affecting the value of pension fund investments. That is why today we may be in a period of loss, but in the long term episodes of gains could be evidenced.
Being so, John of the Cross, Professor of the Economics career at the UPCdetails the main reasons why there has been a loss of value in the investments of the AFPs:
- Political uncertainty: Although there are external factors that are also affecting the profitability of pension funds, this scenario could improve if our country were not in a permanent political crisis. Political instability has a direct impact on investment and, consequently, on the value of pension funds.
- Increase in the interest rate by central banks: Central banks worldwide are raising their benchmark interest rate due to high inflation. This increase could cause less economic activity, affecting the profits of the companies and also the shares in which the Pension Fund Administrators invest.
- Decline in economic activity in China: The decrease in economic activity in China, which has been generated by mobility restrictions as a result of the outbreak of COVID-19, is impacting companies that sell and buy in that country. This situation spreads to other economies, affecting business income and causing a fall in the price of shares where pension funds would have also invested.
- BCRP interest rate increase: At the local level, the Central Reserve Bank of Peru is also raising its interest rate to control inflation, which, together with the political crisis that we have been experiencing, affects the level of economic activity expected and this makes the value of the investments of the AFP funds.
Finally, Juan de la Cruz comments that this is not a good time to withdraw money from the pension fund, since it implies selling financial assets at a very low current value due to the factors detailed above. In case you do not decide to withdraw the money, it is possible that the value of the fund will recover and in this way they will not be harmed by the losses of these last months.
