Venezuela:
Pension reform
In 1999, Venezuela will be moving away from a pay-as-you-go pension system to one based on ‘individual capitalisation funds’, along the lines of the Chilean model. Congressional approval for the move was gained towards the end of 1998. Under this new mandatory system for public and private employees, all participants will receive pensions in proportion to their contributions and reflecting the performance of each’s individual fund, which will be established in the form of a mutual fund. A safety net will exist to the extent that any deficiency between the accumulated value of the fund and the minimum pension will be met by the government.
Contributions to the funds will amount to 12-13% of base salary, a quarter of this being deducted from salary and the remainder covered by the employer.
Full pensions will become payable at age 60, providing 240 months’ contributions have been paid. At age 60, the employee has the option of buying a life annuity from an insurance company or withdrawing fixed monthly amounts from his capitalisation account (in the latter case, he must also subscribe to a life annuity that will start paying benefits when the capitalisation account is exhausted).
Both domestic and foreign banks and insurers will be allowed to establish pension fund administration services to administer the new accounts. Investment regulations to be applied are cautious with permitted investments including Venezuelan debt paper, bank papers, Venezuelan listed stocks, foreign securities (with Central Bank approval), fixed income instruments and hedging instruments. Investments must be purchased on the primary and secondary markets with no more than 15% of assets invested in any one company.
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