“One of our greatest challenges is to further the integration of the building blocks of our own pension systems so as to be able to provide adequate replacement rates”
Based on a study of the experiences, lessons to be learned and current trends of the pension industry, it is now necessary to move towards integrating and complementing the building blocks of the pension system in a much more adequate fashion in order to fulfill the objectives for which they were created in the first place while reinforcing the potential offered by the different capitalization programs with regard to individual mandatory and voluntary pensions. Latin American pension systems were initially designed based on the individual needs of each country as well their own particular characteristics, idiosyncrasies and history. In the light of this, SURA Asset Management, Latin America's No. 1 pension firm, commissioned a review of the different experiences obtained, this for the purpose of drawing up proposals and recommendations aimed at enhancing the present pension systems. The information thus obtained was used to draw up a book titled “How to Strengthen Latin American Pension Systems: Experiences, lessons and proposals” , compiled under the leadership of Rodrigo Acuña from PrimAmérica. This study, the second of its kind, covered a total of 6 Latin American countries, in which SURA Asset Management is present. Here, pension reforms were introduced in the 80s and 90s ushering in individual capitalization programs based on the defined contribution approach. The countries evaluated as part of this study were Chile, Colombia, Mexico, Peru, El Salvador and Uruguay. The study also included experiences obtained with non-contributing programs implemented in the European countries belonging to the OCDE, as well as the voluntary pension savings system used in the United Kingdom, the United States and New Zealand. The researchers came up with an "across-the-board" proposal to address, over the coming years, the possibility of integrating the different building blocks that make up the pension system so as to provide fund members with reasonable replacement rates that do not significantly differ from their expectations. With regard to this latter point, the study stressed the importance of defining what are reasonable replacement rates and how these are to be calculated so as to be able to appropriately evaluate the results obtained with each pension system, define the necessary adjustments for more consistent results and objectives and to provide a basis for comparison between the different countries. This, the second study commissioned by SURA Asset Management, obeyed the Company´s interest in contributing to public policy-making and helping to improve pensions in Latin America. The Company’s purpose in all of this - as stated by Andres Castro, CEO of SURA Asset Management - echoes that of both the authorities and the fund members themselves, namely to help produce better replacement rates so that pensions may more adequately cater to people´s needs and well-being once their retire. This is not the only solution put forward by this book. "A set of measures must be implemented that not only refine the design and operating aspects of the pension systems themselves so as to drive their performance and complement their respective building blocks, but also improve the information, education and advice that fund members receive so that they may better understand how the system works, form more reasonable expectations with regard to their pensions and help to meet the objectives of replacement rates through their saving decisions". Previously, in 2013, the Company conducted an initial study in four Latin American countries titled "How Private Pension Systems are Contributing to Economic Development in Latin America: Experiences Obtained in Colombia, Mexico, Chile and Peru. According to the conclusions presented on this occasion, the implementation of Individual Capitalization Systems using the Defined Contribution approach led to greater economic growth having produced a positive impact on the aforementioned countries in terms of savings, investment and capital accumulation; employment and a formal job market; developing and deepening their respective financial markets; and increasing productivity levels. The highest growth rates, in terms of annual GDP rates, produced by the new individual capitalization systems came to 12.9% in the case of Mexico, 12.8% in Colombia , 8.1% in Chile and 6.2% in Peru. The main conclusion arrived at in this first study was that a virtuous circle exists between a country´s pension system and its economy. About the authors The coordination of the study was led by Rodrigo Acuña Chile who also conducted individual investigations in Chile, El Salvador and Uruguay. Studies in the other countries were performed by the other four authors: Miguel Palomino in Peru; Alejandro Villagómez in Mexico; Leonardo Villar in Colombia and Diego Valero in Chile who also represents the OCDE. About SURA Asset Management SURA Asset Management is a Latin American Company operating in the Pension, Savings and Investment sectors in Mexico, Peru, Chile, Colombia, Uruguay and El Salvador. Besides being a subsidiary of Grupo SURA, the Company has six minority shareholders, namely, the International Finance Corporation (IFC), member of the World Bank Group, Grupo Bolívar, Bancolombia, the International Equity Firm, General Atlantic, JP Morgan and the Grupo Wiese. At year-end 2014, SURA Asset Management held a total of USD 114 billion in assets under management belonging to 17 million clients. * Although AFP Protección and AFP Crecer are not wholly controlled by the Company, their results are included for informative purposes since SURA Asset Management holds an important stake in both companies. About Grupo SURA Grupo de Inversiones Suramericana –GRUPO SURA- is a Latin American company listed on the Colombian Stock Exchange and registered with the ADR- Level 1 program in the United States. . It is also the only Latin American company from the Diversified Financial Service Sector to be admitted to the Dow Jones Sustainability Index (DJSI), which tracks companies who have become global benchmarks thanks to the best practices they have adopted from the economic, environmental and social standpoints. GRUPO SURA has two fields of investment: its core strategic interests in the financial service, insurance, pension, savings and investment sectors; and its portfolio interests in the processed food, cement and energy sectors.