The OECD Consumer Policy Committee has approved policies on insurance and private pensions, and recommended improving risk-based supervision and promoting the participation of more insurers.
From a statement issued by the Ministry of Foreign Trade:
San José, January 31, 2018.After a technical review of the regulations in the insurance and private pension sectors (supplementary and voluntary pension schemes), the Private Insurance and Pensions Committee of the Organization for Economic Co-operation and Development (OECD) has issued a favorable ruling for the entry of Costa Rica to said Organization.
Profits of the six complementary pension fund managers that operate in Costa Rica fell by 17% between June 2016 and the same month of this year.
The figures in the report "Development and Supervision of the Pensions sector" shows that as of June 2016, the six complementary pension operators in Costa Rica reported net income of $11.8 million, while in the same month of this year, earnings dropped to $9.8 million
Among the changes contemplated in the reform to the Pension Law approved by the Congress is a reduction in the administration fee charged by the AFPs, from 2.2% currently contributed by the employer to 1.9% of the Base Income Quotation.
The reform of the Pension Law was eventually approved, generating positive reactions from the business sector, which praised the way in which government deputies and the opposition managed to reach an agreement, after months of extreme polarization.
According to Fitch Ratings, pension insurance has become a problem in terms of technical profitability for the companies that sell them.
From a statement issued by Fitch Ratings:
Fitch Ratings - San Salvador - (April 28, 2016):
Pension insurance has become a challenge in terms of technical profitability for sellers, says Fitch Ratings. One of the benefits of the current pension system is protection against disability and pension insurance, contracted by the Pension Fund Administrators (AFP) for its members. This coverage is provided by insurers and covers the insured against accidents or diseases that would make it impossible for them to work. In addition it also covers beneficiaries when the insured person dies, providing the required additional capital to finance pensions.
The subsidiary of Grupo Financiero Ficohsa will focus on supplementary pension schemes administered using the investment fund model.
The pension funds offered by the Ficohsa Financial Group through its subsidiary are mainly aimed at professionals and companies in the private sector.
Eleconomista.net reports that "... Ficohsa Pensiones y Cesantías, is a supplementary pension fund for its members through means of an individual account, which grows with the contributions made plus the return or interest generated by the investments. "
Citigroup has sold 75% of the shares in Administradora de Fondos de Pensiones Confía to the company Inversiones Atlántida.
Although the amount of the sale has not been released, the three institutions involved have confirmed the transaction. According to authorities at Citigroup, this operation does not affect the rest of the bank's business in El Salvador and they are just waiting for approval from the Superintendent of the Financial System in order to complete the transfer.
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 "...
It is increasingly clear that the European welfare state is not sustainable and it is imperative to make reforms in order to create capitalization systems.
EDITORIAL
Latin America has made progress in these reforms, although in many of its countries, including in Central America, private pension systems are simply younger siblings to the state systems operating under the concept of intergenerational solidarity, suffering not only from limitations on the freedom of all contributors to deposit their savings in the pension fund of their choice, but also the powers of managers of these funds to invest in securities other than government ones.
The new Sanchez Ceren administration will discuss the theme, including the option of going back to the system of pensions being managed by the State.
An article on Elsalvador.com reports on the differences in the results obtained from the present system where private administrators manage the funds that workers contributions are paid into with respect to the debacle that occurred when the system was operated by state institutions such as the National Institute of Pensions of Public Employees (INPEP) and the Salvadoran Social Security Institute (ISSS).
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%.
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.
While essential infrastructure projects lack funding, the capital accumulated in pension funds only serves as a source of funding for state coffers.
In a country where the need for funds for projects that promote economic development is increasing, the resources managed by pension operators have to be invested in obsolete investment schemes, ensuring only low returns for contributors.
The government of El Salvador has lowered the proportion of the portfolio that the Pension Fund Administrators can invest in securities of foreign companies from 20% to 10%.
The Financial System of El Salvador (SSF by its initials in Spanish) stated recently that the Administrators of Pension Funds may not invest more than 10 % in bonds or securities of foreign companies registered in the country, despite the fact that these are the entities which allow Salvadorans to earn 6% interest through investments.
Seguros Assa has sold the remaining 21% of shares held by the Profuturo Fund the largest banking institution in Panama.
Banco General "... announced that it has acquired 630 shares belonging to the Seguros ASSA Insurance Company in the pension and severance fund Profuturo ..." reported Anpanama.com.
With this move the bank will be the owner of 100% of the company Profuturo.
77% of Costa Rica state Pension Investment Fund are in bonds, whose finances in 2013 have a deficit of 5% of GDP.
Nacion.com reports that the Pensions Superintendency (SUPEN) has warned about the situation, noting that "the high background concentration of Disability, Old Age and Death (IVM) funds in a single issuer is a risk factor."
"... The balance of the pension fund's investments amounted to ¢1.2 trillion in last September.