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 in El Salvador are being invested in government securities with low returns.
Laprensagrafica.com reports: "Pension Fund Administrators (AFP's by their initials in Spanish), have invested between 70% and 80% of the fund in public debt from different institutions. The central government uses this money to pay those who retired under the previous system." However, profitability has been low, this is because the law hinders the AFP's options.
The Salvadoran Association of Pension Funds has asked for changes in legislation to be made firm in order to increase the profitability of the savings of workers.
The Salvadoran Association of Pension Funds (Asafondos) asked President Mauricio Funes to keep his promise to carry out a second part of reforms to the pension system.
Funes offered to make the changes last month in order to raise the profitability of pension funds in light of strong criticism of the low returns paid on the contributor’s savings, reported Elsalvador.com.
Inflation negatively affects the profitability of the private pension savings system of El Salvador.
The profitability of the Pension Savings System (SAP in Spanish) in El Salvador, a private pension scheme, has again produced negative returns last year, said the Superintendent of Financial System.
The watchdog found that the real return of 2011 was about -2%, due to accumulated inflation from January to December.
In real terms the actual return of pension funds in El Salvador is still negative.
The nominal return in August on Salvadoran pension funds was 3.50%, but because inflation reached 6.82%, the loss of value to contributors savings was 3.32%.
The cause of this is ascribed to the inability of pension fund managers of to invest in assets other than those specified securities issued by the Salvadoran state, which supposedly are low risk, but which pay very low interest rates . "The Law of Pension Savings System (SAP) does not allow pension funds, made up with savings of contributors to the system, to be invested abroad."
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.
A slight increase in the value of pension funds was observed in the months of December and January.
In his article for NACION.com, Patrician Leitón writes, "For example, the historical real values of the obligatory complementary public pension system, “ROP,” grew from 3.55% in November to 3.61% in December and to 3.71% in January. December and January are the first months since February 2007 in which the real monthly value was a little higher than that of the previous month.”