Workers’ union leader explains the government’s impact on contributors seeing a loss of funds in the AFP account statements.
Does the government have any responsibility for the fact that workers have had a loss in the profitability of their pension savings?
The response of Patricio Pineda, leader of the Roundtable for a Decent Pension, whose organization represents thousands of employees who advocate for a better pension, is that there is an influence from the government and he explains why he considers that it has become a crisis.
“In terms of profitability, this is the second time that we Salvadorans have been hit on the back,” said the leader.
According to the founder of the union, who for years has closely followed the pension situation in the country, the same official data from the Superintendence of the Financial System (SSF) in its report as of May 2022 reflects how the funds have been invested. of the workers who are managed by the AFPs and the reason for the low earnings that many Salvadorans have pointed out on social networks.
Workers’ pension savings continue to generate profits despite drop in profitability in May
“What we workers have saved from 1998 to May 2022 is just over $13 billion, but the critical part is that the investment portfolio of that fund (with fixed and variable income) is between the conservative fund and the special retirement fund. (with which pensions will be paid to retirees), but in that there is regarding $800 million (invested); the sad thing is the following: of $13,000 million there are almost $7,500 million, according to the report of the Superintendency, which are invested in State papers through the Social Security Obligations Fund (FOP)”, explained Pineda during an interview on channel 21.
What does that mean? The leader summed it up as follows: “The Salvadoran State, having made use of that money, has paid us ridiculous rates; they come to the AFPs annually through the trustor, one is INPEP and the other is Social Security, and they say: I need so many millions to pay (pensions), and the AFPs give them to them because the law mandates it, that’s it a legal padlock that is there”.
For Pineda, “the problem is that what the government pays in interest is low and today added to external factors that are out of our hands, such as Russia’s invasion of Ukraine that has triggered inflation rates worldwide, the state is financially drowned”.
To put it in perspective, while the government pays Salvadoran workers a rate of around 4% for the money they lend to pay pensions, it pays foreign investors rates of up to 10% for Eurobonds.
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According to a statement from the Salvadoran Association of Pension Fund Administrators (Asafondos), in May the nominal yield was 3.89% in the conservative fund (savings of young contributors) and 4.07% in the special retirement fund (close to retire).
This percentage was higher in 2021 when the nominal return was 5.61% in the conservative fund and 4.08% in the special retirement fund.
Asafunds indicated that workers’ savings are a long-term investment and therefore their profits must also be considered in the long term.
According to May data from the SSF, workers’ savings amount to $12,640.4 million, made up of $11,879.6 million from the Conservative Fund and $760.8 million from the Special Retirement Fund.
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The blow of inflation
Asafunds, which represents the two main AFPs in the country, also attributed the fall in the profitability of pensions to the effect of inflation, which rose to almost 7.8% last June.
“So its effect on long-term profitability… is, in any case, limited and does not imply that savings have stopped increasing,” said the association.
Pineda pointed out that the country’s credit risk levels have also had an impact. In fact, the financial analysis agency JP Morgan recently published a list in which El Salvador is at the head of the countries, worldwide, with the highest risk of default.
Likewise, in the credit risk indicator, better known as EMBI (Emerging Markets Bond Index), the country reached 35 points for the first time in its history and is only surpassed by Venezuela.
“And this is thanks to the fact that the country is politically unstable, unfortunately it is the reality,” said Pineda.
In Pineda’s opinion, this context also marks the difference with the previous occasion in which the profitability of the accounts of the contributors presented a strong loss.
“The difference is that in the context of 2005 and 2008, the year of the global economic crisis, what happened was a resounding drop in the LIBOR rate, with which the rates of return were weighted in favor of the individual accounts of each worker. At that time, and there are studies by Fusades and Funde, which say that between 1998, 2003, 2004 they earned 12% per year and suddenly it fell to 0.75%, but we have never experienced a crisis in which we are even below zero Pineda said.
