September 13, 2012 / 9:27 PM / 5 years ago

Credicorp unit wins Peru pension auction to cut fees

* AFP Prima expects 80,000 new customers

* Second auction held at the end of the year

LIMA, Sept 13 (Reuters) - Credicorp won an auction on Thursday after agreeing to lower fees for the pension fund it runs in exchange for the right to sign-up all new enrollees in Peru’s retirement system for the rest of this year.

The auction was the first concrete step toward revamping the nearly 20-year-old private pension system since Peru’s Congress passed reforms in early July that aim to reduce fees and boost the number of workers covered.

Peru’s private pension system is run by four pension funds called AFPs that manage some $30 billion, the most important source of investment capital in the country, but the funds had long been criticized for charging high fees and for only covering one-third of Peruvian workers.

AFP Prima, which belongs to the financial holding company Credicorp and now controls 30 percent of the pension market, won the right to incorporate into its fund all workers who join the private pension system through the end of the year.

Prima cut its commission to 1.60 percent from 1.75 percent to offer the lowest fee, which helps bring fees down to an average 1.83 percent starting Oct. 20, said Elliot Sanchez, the superintendent of the AFP’s regulating body.

Prima AFP general manager Renzo Ricci said he expects 80,000 new clients to join the fund between October and December.

“We’ve made a very attractive offer that all of our affiliates will benefit from,” he said.

The AFPs hold deposits equal to 20 percent of Peru’s gross domestic product, which is on track to expand around 6 percent.

NEW AUCTION FOR NEW AFPS

The new pension law requires the banking regulator to hold a tender every two years to decide who will manage the pension funds of workers new to the pension system. The AFP that can offer the lowest commission will be allowed to manage the funds and new fund operators will be allowed to participate in an auction slated for Dec. 31.

“In that auction the market on offer is much bigger because it comprises all the new dependent and independent affiliates and even those that are now in the government pension system who want to move over to the private system for two years,” said Ricci.

The pension reform aims to fold in some 2 million workers who currently have no pension and cut commissions that the AFPs charge by at least 30 percent, and will gradually change the existing system from charging fees based on salaries to fees based on assets under management.

That’s upset some 30 lawmakers who say the new law goes against Peru’s constitution, which says assets being managed by the pension funds cannot legally be tapped to pay commissions. Peru’s constitutional court has agreed to hear their complaint.

The association of AFP operators has also complained that the auction process puts too much emphasis on the fees they charge and not enough on the profitability of the funds they manage.

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