The new reform of the private pension system fills several gaps in the private pension system and maintains some challenges. Galantino Gallo, CEO of Prima AFP, briefly summarizes the measure and the challenges it imposes.
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Why do you consider the Law of Modernization of the Peruvian Pension System positive?
The approved standard is a step on the right path and represents significant progress towards the construction of a more robust pension system that responds to the current needs of the population. With the reform, the main beneficiary is the member, since they will be able to access a minimum pension, have various options for the administration of their funds and a commission for results. All this will allow the system to return to its pension nature. Although it is progress, there is still an opportunity to continue working on new reforms and continue joining efforts between each of the actors, putting the member at the center of all our decisions.
How does the minimum pension operate?
The new law implements a minimum pension of 600 soles, which ensures social protection for retirees and represents a significant improvement compared to being left without a pension, which encourages members to complete at least 240 contributions, providing a safety net, especially for those with fewer contributions. For example, a person who did not consolidate a fund and only has enough for a pension of 450 soles will have the option of going to the ONP to cover the difference and access a minimum pension.
With the current size of the pension system, is there room for the entry of new players?
If there is a possibility of more players entering, the new law opens the doors. Let us remember that the private pension system has gone through a dramatic change due to recent withdrawals that have allowed 45% of the accumulated funds to leave. If these continued, the market was going to become smaller and smaller and would not allow the entry of new players, but now that withdrawals will no longer be allowed and incentives are being incorporated for the generation of a pension fund, such as minimum pension, the consumption pension and greater attributes in terms of commissions, this should encourage the entry of new players, whether they are insurers or savings banks.
Does the need for greater competition demand changes in regulation?
Without reducing the effectiveness that the SBS has had in maintaining a solid pension system, the way of regulating new competitors will have to be modernized. Also, it is required that the regulator put us on its side to review some bureaucratic pain that we may have, in order to generate incentives for new participants to enter who can compete freely. There is a part that will have to be clarified in the regulations, because although we are opening the accounts to new competitors, the tenders continue to be made and that opposes the opening of the market. Freedom must be provided for each participant to propose their value offer.
With the rule and the entry of new players, what will Prima AFP do?
For two years we have been investing a lot in transforming ourselves. We are a much more dynamic company, 70% of the team operates using agile methodology. What we are now seeing is how we can provide the best possible service to our affiliates, via digital and in-person channels with very transparent and simple communication. Also, start working much more on the education part, beyond obviously offering an extremely solid return on investments. We have the objective of positioning ourselves in the next three years within the first two places in profitability and that does not change; Therefore, our investments follow a multi-year strategy.
Recently, the president of the BCR, Julio Velarde, said that what the AFP system has lacked is providing information regarding what the member should expect as a pension. What will they do to rectify that failure?
At Prima AFP we are dedicated to investing in this aspect. It is not that the information has not been transparent, because by regulation we have to show it, but it is the way in which the message is conveyed that means that today members understand us very little. For example, all AFPs have future pension calculators to estimate what the pension you will achieve will be, but their use could be much more frequent through friendlier applications. That’s what you have to invest time in, transforming. Today we are dedicated to it. At Prima AFP we have projects underway to improve the simplicity factor of our product and communication, always being transparent. I think that’s where the most changes in the industry are going to come.
What will this performance fee consist of?
It has not yet been regulated and the regulation will be critical. I think that this commission should be an option for the affiliate, because not everyone will necessarily want to opt for this. A performance fee separates the fee into two parts: one that is very small fixed and another variable depending on profitability. For example, in the performance fee, if it is zero, only the fixed part is paid. What things need to be regulated? The period must be regulated, that is, are we going to measure it over 12 or 24 months? Is the base going to be left to the free decision of each AFP? Is the regulator going to set a minimum? All this needs to be clear.
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