5.6.4. Outlook for the AFP future

Currently Peru’s Pension System covers about 30% of the labour force, one of the lowest levels in Latin America. This coverage is estimated to increase to about 40% in 2030 and to grow further¹³⁶. Peru’s population is young and so is the relatively new Private Pension member structure immature. Both factors in combination with further growth of GDP lead to long time horizon for investment and positive cash position.

The four private AFPs today receive about 3bnUS$ in contributions per year¹³⁷ and all of this has to be invested. Due to the competitive nature of the pension system in Peru, where members can switch pension provider, the performance of the funds is usually compared on a short-term basis, and significant relative underperformance has to be made up by the provider.

Illustration 21: Peru's population age pyramid¹³⁸

The competitive situation is sharpened by regulation (limiting investment opportunities) and the relatively illiquid capital market in Peru forcing them to stay with few choices and long term ownership¹³⁹. The private Pension Funds seek to distinguish from the others and push regulations to ease limits for alternative investments, investments in infrastructure and foreign investments¹⁴⁰.

¹³⁶ BBVA, 2008, A look at the Peruvian Pension System Diagnosis and Proposals, 2008
¹³⁷ Luis Valdivieso, president of the Association of Pension Fund Managers (AAFP) in interview w Andina December 27, 2012
¹³⁷ Luis Valdivieso, president of the Association of Pension Fund Managers (AAFP) in interview w Andina December 27, 2012
¹³⁸ BBVA, 2008, A look at the Peruvian Pension System Diagnosis and Proposals, 2008
¹³⁹ OECD/International Finance Corporation (2011), Strengthening Latin American Corporate Governance: The Role of Institutional Investors, Corporate Governance, OECD Publishing
¹⁴⁰ Funds Americas, Peru Puts Pressure on the Constitutional Court, 09/10/2012 Janette Recarte