The international association of AFPs and the ADAFP close the XIX FIAP International Seminar with the aim of communicating more and better about the system and the impact of the investments of the individually funded funds on economic development.
The investment of pension funds has a high impact on the economy, on the strengthening of the productive sectors and on the improvement of the quality of life of the communities, in addition to fulfilling its main purpose, which is to increase the savings of workers for a better retirement.
This was stated by speakers and panelists at the XIX FIAP 2022 International Seminar “Challenges and solutions for today’s and tomorrow’s pensions”, which closed last Friday in Punta Cana.
After the last panel, focused on how the AFPs and the investment of pension funds in the stock market generate economic and social profitability in the Dominican Republic, the president of the International Federation of Pension Fund Administrators (FIAP) , Guillermo Arthur, said that the testimony given in this last panel shows the importance of “making tangible how pension funds are capable of making countries progress” and highlighted in his closing remarks the value of public-private cooperation, between the State and the companies, for the growth of the economy, strengthening in this case the funded pension system.
In the final panel, Yamil Isaías, CEO of Pioneer Investment Funds, highlighted that in 2018 this company placed the first investment of pension funds in tourism, which was the case of the Hotel Club Med in Miches, with which they managed to get the Government to invest in infrastructure to improve accessibility to this area and that because of that investment said community and the hotel sector are receiving a new aqueduct, security, environmental management and an area for waste management. “Today Miches is a new tourist destination in the Dominican Republic and is on the Government’s priority agenda,” said Isaías.
Raúl Hoyo, CEO of Altio, made special reference to the development of the electricity sector since the pension system began. While in 2003 the installed capacity was 3,300 megawatts and except for hydroelectric plants there were no renewable projects, to date the installed capacity amounts to 5,200 megawatts and 26% of the energy is renewable “thanks to the investment of pension funds through investment funds”, with wind and solar parks.
Meanwhile, Andrés van der Horst, manager of Fiduciaria Reservas, valued the impact of the investment of pension funds in the improvement of infrastructure or tourism development and considered that an example of this is that the RD Vial Trust is financed today with pension funds. He also said that the tourism development project in Pedernales represents an opportunity to continue making a social and economic impact with the pension funds.
“I am convinced that the entire south, through the development of Pedernales, is going to change its entire economic physiognomy and what a great opportunity this is when you can combine the savings of workers through the AFP, an attractive return, with an investment by the State in something that they can see, that they can feel,” he said.
In the same block Felipe Amador, CEO of Advance Asset Management, presented successful cases of investments such as Grupo Bolin and Pan Pepín, in 2019, which allowed the implementation of synergies and operational and financial improvements and the increase of 40% in market share in the country in their category. “We are leaving dozens of companies ready at the level of governance, reporting, transparency, information, which in the event of a bond or stock issue would be highly qualified to participate,” he said.
Meanwhile, the executive vice-president of the Dominican Republic Stock Exchange and Securities Market (BVRD), Elianne Vilchez, referred to the evolution of the local stock market and highlighted the growth of pension fund investments in private sector companies. The local market panel was moderated by José Yude, from Alpha Valores.
The day’s lecture was given by renowned economist and Columbia University professor Xavier Sala-i-Martín, who cited as challenges the reduction of stable employment, uberization, disintermediation and remote self-employment among the factors that may favor informality and contribute to reduce contributions to pension systems.
As ways of experimenting with solutions, Xavier Sala-i-Martín spoke of a mixed system in which, in addition to pension funds, governments would guarantee a minimum for survival in old age. He also suggested broadening the range of investments and using technology and artificial intelligence to optimize the relationship with members. He also sought “behavioral solutions” to confront the tendency towards immediate gratification that causes human beings not to prioritize retirement planning.
The time for reform in the Dominican Republic
At the seminar, the executive president of the ADAFP, Kirsis Jáquez, affirmed that it is time to carry out a reform process that will make it possible to grant more and better pensions, and to continue generating economic and social profitability for the members and the country with the investment of the funds.
Jáquez presented on this stage the reform proposals of the ADAFP, which seek to make the system universal and solidary with the inclusion of independent and informal workers, allowing Dominicans residing abroad to withdraw their funds; to reduce from 25 to 15 the years of contribution required to access minimum contributory pensions; to guarantee minimum solidary pensions to avoid the risk of indigence in old age; to make disability pensions for life; and to balance replacement rates between men and women.
The director of regulations of the Superintendency of the Securities Market, Olga María Novar, cited as challenges for the market to allow investment in foreign securities, to achieve more participation of pension funds in the real sector of the economy, including direct investment in infrastructure through public-private alliances.
The technical director of the Superintendency of Pensions (SIPEN), Juan Carlos Jiménez, shared the strategic vision of this entity, focused on broadening the scope of supervision and regulation and simplifying procedures; user service and institutional strengthening.
From the business branch of the pension system, José Goris, actuarial director of Seguros Universal, said that among the main challenges of the insurance sector are the increases in disability benefits from temporary to lifetime. Meanwhile, Lucas Gaitán, executive president of UNIPAGO, presented the local experience with the database management and custody company, whose operating model is beneficial for the system and its members.
In this block on the Dominican system, specialist David Tuesta presented his reflections and perspectives after two decades of pension reform in the Dominican Republic in 2001, which are contained in the book Prosperidad y Pensiones (Prosperity and Pensions), circulated in March by the ADAFP.
Mexico’s reform and the challenge of improving pensions
Bernardo González, president of the Mexican Association of Afores (AMAFORE) outlined Mexico’s pension reform approved in 2021, which reduced from 24 to 15 the years of contribution required to have access to an old-age severance and old-age pension. This reform approved a gradual increase in the contribution rate for workers to obtain a better pension, from the current 6.5% to 15% in 2030, which will increase the replacement rate.
The seminar included the participation of Waldo Tapia, leading labor market specialist and pension coordinator of the Inter-American Development Bank (IDB), who spoke about the vision of pensions in 2050. The head of the OECD Pensions Unit, Pablo Antolín, spoke about the region’s experience with pension systems.
David Blake, director of the Pensions Institute of the City University of London, spoke about how to provide better pensions and cited the Save More Tomorrow plan, through which it is accepted to start or increase savings regularly when a salary increase is received, autoenrollment mechanisms (automatic enrollment) that are a key part of pension planning in the United States and the United Kingdom.
The XIX FIAP International Seminar was held on October 6 and 7 with the attendance of some 300 people in person, from more than 15 countries, and some 500 participants who followed the event virtually -through the live transmission of the ADAFP YouTube channel-.
The event was inaugurated by the Vice President of the Republic, Raquel Peña, and was attended by the President of the National Competitiveness Council, Peter A. Prazmowski; representatives of institutions of the social security system, AFPs, banks, investment funds, brokerage firms, local and foreign business associations, social security specialists, journalists, economists, among others.