The commissions that AFPs charge monthly to their affiliates are regulated in Articles 22a, 28 and 29 of D.L. No. 3.500 and in Book I, Title II, Chapter VII Compendium of Pension System Standards Superintendency of Pensions (SP).
The abovementioned D.L. states that the Administrator “shall be entitled to remuneration established on the basis of commissions, which shall be deducted from the respective individual capitalization accounts or withdrawals, as appropriate” and from the accounts of the holders of voluntary savings accounts. It is added that these commissions “will be earmarked for the financing of the Administrator”, including the administration of each of the Pension Funds, individual capitalization accounts, old-age pension systems, invalidity and survival and the system of benefits guaranteed by the State and the payment of the insurance contract premium set out in Article 59 of the cited legal text.
The fees charged by AFPs to their contributors and savers are intended to finance the administrator and consider that they are sufficient to cover the operational costs that the Administrator must incur for managing the Pensions and disability and survival insurance that they administer, noting that the D.L. does not specify or establish a profit or profit associated with its business management that the AFP goes or intends to obtain, but leaves this issue so dedicated to the “market” important for this industry and for its customers, by rightly ordering that commissions “will be freely established by each administrator”, without in this matter having intervention the will and opinion of the affiliate and contributor, both in saving mandatory as in the volunteer.
It is the RESPONSIBILITy of the SP on a six-monthly basis to carry out a study of the administration costs of the Pension Funds and should disseminate the profitability of each of the Administrators and make it available to the general public. In any case, a guiding principle of the system prevails, which is that “commissions will be freely established by each administrator, on a uniform basis for all its affiliates”, the position of the affiliate being in this area a link of mere adhesion, without individual or collective power to discuss and negotiate the amount of the commission to be paid, that is, the market only looks after the interests of the administrator but does not consider the manager, holder and owner of the pension funds quoted.
Thus, as a practical example, an AFP points out on its corporate website “that commissions are a percentage of the contributions, intended to pay the AFP for the collection and management of your funds and invest your savings”, and adds “if you quote 12.8% of your income taxable, is broken down into: 10% savings for your pension, a 1.27% administration fee – variable according to your AFP – and 1.53% to pay for disability and survival insurance funded by your employer”.
Currently of the six AFPs operating in the social security market, the fees charged for managing funds range from the lowest of 0.69% to the highest of 1.44%, so the fee swing runs in a seven-point range differences, between the cheapest and the most expensive for the contributors. This structure, which has been criticized, shows that the commissions charged by The AFPs monthly from the contribution and savings of the affiliate and pensioner, respectively, has no relation to the profitability that you get from the administration of the Pension Funds administered by these institutional investors, because if the return is positive or negative for the funds of the contributors, they still apply their commission rate for administration, decoupled from the return of the funds and linked only to the contribution individual accounts they manage. This means that if funds record losses, AFPs still earn their commission for administration, at any event, even if this administration is unfavorable to the affiliate. Consequently, when the affiliate loses value in its individual capitalization account, for negative return on the fund to which it is attached, the AFP does not lose in the profitability of its business, as it still charges its commission on the basis of the quote worker’s forecast.
We now know that FYN profits in the first three months of 2019 made a profit in their industry of $196 million, and we can also know that the return on funds in the last quarter of 2019 will be negative, as a decline in profitability of the shares and investment securities of our domestic stock market, addressing the social, economic and political crisis that Chile is currently going through. So is it legitimate to continue with this model of AFPs commissions, where if there is loss to the pension funds they manage, even if AFPs have profits for managing funds with loss or negative return? The answer seems obvious and buttling, a planned system cannot work with this logic and business ethics in terms of secured profitability or any event for the administrator. This is another example of the lack of legitimacy and equity of the forecast system, in which the contributor pays return to the AFP at any event, whether his individual savings obtain profit or loss, the predicate is his quoted “partner”, who is exposed to that , even if your money doesn’t rent, but your AFP wins the same. It would be appropriate for the Association of AFPs to discuss this issue and reflect on its form of economic relationship with its affiliates, in terms of proposing an alternative model, more balanced and fair for the contributors and the same is expected of the executive and in a forthcoming reform of Chile’s planned system. In this context, where there remains the constitutional guarantee of the right to social security, in which the Constitution declares “The State will oversee the proper exercise of the right to social security”, then the relevant question is as follows: is the structure of commissions described in appropriate conversation with the constitutional guarantee and the end of the State in this matter?
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