Peru approves a new early withdrawal of pension funds

RIO DE JANEIRO, BRAZIL – The Peruvian Congress approved by a large majority this Wednesday a new extraordinary withdrawal of private pension funds to face the pandemic and price increases due to the Russian invasion of Ukraine.

The rule was approved by 107 votes, eight against and two abstentions, and will allow some eight million contributors to private Pension Fund Administrators (AFP) to withdraw up to S/18,400 (about US$4,980) from their accounts.

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“This measure is intended to alleviate the family economy of thousands of affiliates due to the Covid-19 pandemic, increasing consumption in the economy,” said the president of the Congressional Economy Commission, opposition congresswoman Silvia Monteza.

The project, which must be promulgated by the Executive to become law, had received the green light from the Economy Commission on April 12. The disbursement will be made in three parts and every 30 days, as it has been done since the first withdrawal was authorized in 2020 in the worst season of Covid-19 that led to a long quarantine of 107 days.

This is the sixth withdrawal of pension funds since the pandemic began. The total withdrawn amounts to about S/65.923 million (about US$17. 817 million). With the new withdrawal, another S/30 million (about US$8.1 million) would come out of the pension accounts, according to the AFP Association, which rejected the project.

“It is pure demagoguery, because there is no reason to do so. Production and employment levels are now higher than March 2020,” the spokesman for the AFP Association, Joaquín Rey, said recently. He warned that these measures will have a negative impact, because “the pension savings are for the future.”

In addition, the increase in liquidity in the economy will stimulate inflationary pressures. Peru experienced violent days of protests in April in rejection of food and fuel price hikes, driven by the war in Ukraine.

Inflation now reaches figures not seen in more than two decades, 1.48% in March and 0.96% in April. At 12 months it is 6.82% and it seems certain that this year it will exceed the goal of 3%.

In Peru’s private pension system, created a couple of decades ago following the Chilean model, private workers have individual savings accounts for their retirement. With 33 million inhabitants, Peru accumulates more than 3.5 million cases of coronavirus and more than 212 thousand deaths.

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