--Peru ratified legislation last week to reform the
private-pension-fund system
--The government aims to increase coverage and lower
commissions
--Private-sector group and opposition lawmakers question
constitutionality of reforms
By Ryan Dube
LIMA, Peru--Peru's association of private pension funds is
questioning the constitutionality of government-approved
legislation to reform the country's private pension fund
system.
The executive branch last week gave its nod to the legislation
following a narrow approval in Congress earlier this month. The
legislation includes a number of reforms that are intended to
expand coverage and lower commissions by attracting
competition.
Among the reforms, the law will require workers under 40 years
old to sign up with a pension fund, while also requiring
independent workers who make more than 1.5 times the minimum wage
to make contributions. The law is expected to go into effect 120
days after the publication of regulations outlining how the reforms
will be implemented.
"The central objective that we have with this law is to improve
the capacity to have a pension when you retire," said Finance
Minister Luis Miguel Castilla.
However, in a statement Sunday, the association of private
pension funds, known as AFPs, said some of the reforms in the
legislation are unconstitutional.
The private-sector group said one of its concerns is that
commissions will be charged on the assets, as opposed to the
current system, where fees are charged on the contributions. Other
criticisms were that Peru's tax agency will have a role in charging
commissions from pension fund holders and that pension funds will
have to bid for new contributions.
The association said the complexity of implementing some of the
reforms could affect the government's short-term goal of
centralizing operational aspects.
"We reiterate our concern that the law is vulnerable to some
constitutional questions affecting the stability of the (private
pension system)," the association said.
The association added that it does support some of the reforms,
including changes to increase the number of people covered.
Opposition lawmakers have also criticized the reforms.
Legislators from the opposition Fuerza 2011 party say they will
challenge the constitutionality of the reforms in Peru's highest
court, the Constitutional Tribunal.
Justice Minister Juan Jimenez said the government will defend
the changes. "From the executive, we understand that the
legislation is absolutely constitutional and that is going to be
our defense," Mr. Jimenez said.
The private pension system, which includes four private pension
funds, was established in 1993 and has registered about 5 million
people.
The pension funds are AFP Horizonte SA (HORIZC1.VL), which is
owned mainly by Holding Continental and Spain's Banco Bilbao
Vizcaya Argentaria SA (BBVA, BBVA.MC); AFP Integra SA
(INTEGRC1.VL), which is owned by Colombia's Grupo de Inversiones
Suramericana SA (GIVSY, GRUPOSURA.BO); AFP Profuturo, whose main
shareholder is a unit of Bank of Nova Scotia (BNS, BNS.T); and
Prima AFP (PRIMAC1.VL), which is controlled by Peru's Credicorp
Ltd. (BAP, BAP.VL).
Write to Ryan Dube at ryan.dube@dowjones.com
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