* New fund could enter market as early as December
* No reforms in 19 years, unlike Chile and Mexico
* Four funds currently have $30 bln in deposits
By Dante Alva and Omar Mariluz
LIMA, July 5 Peru's Congress has passed the most
significant reform yet to its 19-year-old private pension
system, aiming to increase the number of workers enrolled and
lower fees for contributors by allowing more competition.
The bill, based on a proposal from the finance ministry,
passed Congress's permanent commission with 11 votes in favor,
10 against and one abstention around midnight on Wednesday.
Peru's four private pension funds, with about $30 billion in
deposits, equal to 20 percent of gross domestic product, are the
fast-growing economy's most important source of investment
capital. They have been criticized for signing up only about 30
percent all workers and charging high fees.
The existing four funds are run by local banking groups and
reformers say allowing new asset managers to enter the sector
would drive down fees, currently around 2 percent of monthly
salaries. The new system would gradually change to charge fees
based on assets under management - which would lower income for
operators in years when they lose money.
Fund managers have long complained that a vast informal
sector limits their growth. The government has said the reform
should increase enrollments by around 40 percent and reduce
commissions by at least 30 percent by introducing competitors.
According to the reform, Peru's bank and insurance regulator
will hold a tender every two years to allow funds to operate,
possibly allowing new operators to enter the market. Bidding is
to be held in December of this year.
Peru's private pension funds debuted in 1992 to essentially
replace an ineffective public system. They are modeled after a
system pioneered in Chile. But unlike Peru, Chile and Mexico
have passed reforms to lower fees and increase competition in
"Competition is a means to ensure consumer welfare - here in
Peru we are paying the highest commissions in the region," said
the President of Congress's Consumer Protection Commission,
Existing funds have criticized the proposed tender process
because they say funds would be be rewarded for offering the
lowest commissions, not for creating the highest returns through
The reform also requires independent workers earning at
least 1.5 times the monthly minimum wage, or 1,012 soles ($376),
to contribute 10 percent of their income to one of the private
pension funds, or to the small public system.
Contributions by independent workers who earn barely more
than the minimum wage would initially be helped by a government
subsidy worth 7 percent of their wages that would gradually be
reduced to 4 percent.
(Additional reporting by Caroline Stauffer; Editing by Andrew