Workers Lend Cheap Money to the State

The interest rate that the Government of El Salvado pays for money from the Pension Funds is not more than 1.3%, while international investors are paid more than 7%.

Wednesday, February 26, 2014

Ricardo Soriano, Chairman of the Committee for the Defense of Workers Pension Fund of El Salvador (Comtradefop) reported that since the year 2006, the State has forced the Pension Fund Administrators (AFP) to invest the money belonging to Salvadoran workers in Pension Certificates, initially 30% and the 45% in 2012, money which has suffered a loss greater than $938 million each year.

According to the data handled by the President of Comtradefop, "... to date the government has "borrowed" some 2,700 million from contributions made by Salvadorans, which is not generating enough profitability to ensure a good pension in the future."

"Official statistics from the Financial System Regulator indicate that as of October 2013, of the $7.0927 billion in pension funds paid into by Salvadorans, $5.9932 billion has been invested in public institution instruments, ie more than 80% of pension funds are loaned to the Government."

"The petition by the workers committee comes at a time when the government is preparing - although they have tried to deny it - a new package of amendments to the Pensions Act which includes drastic measures such as a return to the PAYG (public system), increasing the retirement age (currently 55 for women and 60 for men), as well as increasing the number of years of contributions, among other things.

The same President, Mauricio Funes, confirmed that these reforms would be submitted to the Members of the Legislative Assembly after the presidential elections."

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More on this topic

Poor Results of Pension System in El Salvador

July 2014

The impossibility of investing more in corporate securities and less in government debt is inhibiting the long-term growth of savings managed by pension funds.

Studies by experts in the field estimate that between 2006 and 2012 pension funds missed out on between "... $600 and $900 million." Augusto Morales, director of the Salvadoran Association of Pension Fund Administrators (Asafondos, union of the AFP) told that Laprensagrafica.com "... workers' savings total $7.5 billion between the two administrators. Of that total, $2 billion has generated in 16 years (since the system changed)."

Warning of Pension Risk in El Salvador

June 2013

Salvadorans Unions are opposed to the purchase of unrated debt using capital from the Pension Administration Fund.

The Committee to Defend Workers Pension Funds believes that they will start to purchase fraudulent bonds in order to repay the debt of an institution which, since it started the program "Housing for Everyone" has administered in an "impaired" fashion, the funding for this initiative.

New Proposal for Improving Pension Collections

April 2012

The Salvadoran Association of Pension Fund Administrators has presented proposals to increase collection and maximize pension returns.

Among other proposals, there is a suggestion to rise the interest rate paid by the Government for the certificates that are purchased, in an obligatory fashion, using pension savings, going from an average rate of 1.49% to 4% or more.

Salvadoran Pensions Fund Grows Profitably

April 2011

Three years after its creation, the fund's income exceeds $1.5 billion.

Savings accumulated by Salvadoran workers, which make up 25% of the country's GDP, have grown steadily since 1998, the year in which the Pension Savings system was created.

Despite the important growth that the regime has shown in the last two years, one of the main challenges for the pensions sector is to increase the number of members, as well as attract workers from industries such as farming, informal retail and independent professionals.

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