Industry watchers bemoan the government's move to nationalise private pensions and reduce the retirement age, Rodrigo Amaral reports
The reform appears to be not only a step backwards for the pension system, but also a waste of huge efforts made by the country to set up a viable regime since the mid-1990s. The transition from a pay-as-you-go system managed by the government to a privately managed, fully funded one based on individual contributions was not painless. At the time, Bolivia opted for radical change, and the savings of all participants were transferred directly to the new regime, without transitional arrangements that have been adopted by other countries. The retirement age was increased from 50 years (for women) and 55 years (for men) to 65 for all workers. To make it all possible, the state had to absorb costs equivalent to 4% of GDP.
But the effort was bearing fruits, according to Jemio. “The 1997 reforms solved many of the problems that the system faced previously, such as high management fees and cases of corruption,” he said. “Under the private managers, it became clear that the funds belonged to participants, and the private companies charged a clearly defined fee to manage them.
Two companies, AFP Futuro, which is part of the Zurich Financial group, and BBVA Previsión AFP, a unit of Spain’s banking giant, took over the management of the pension pots for Bolivian workers. One of the consequences was a reduction of costs for savers. Before 1997 the state would charge between 10% and 35% of the contribution made by a worker as a management fee, and reserves kept by the state to pay for pensions amounted to a mere $150m. Under the private firms, management fees stabilised at 10%, and more than $4.6bn of assets were accumulated to guarantee the payment of pensions to participants.
However, the 1997 system could still be improved: Jemio noted, for instance, that pension fund managers have not been able to diversify their portfolio of investments, and the pension pot did not contribute as much as it was desired to develop Bolivia’s capital markets. More than half of the assets have been required to be kept in government bonds, not the least as a means to help the government to fund the huge costs incurred during the reform. But managers might have been able to find better uses to the remainder than keep the money in bank accounts, which has been the fate of most of the assets not turned into government bonds.
