Congress approves temporary early retirement law, 50% lump sum payouts

Friday, October 23, 2009

The Peruvian congress has approved a bill creating a temporary early retirement law for the country, which will be in effect until the end of 2012, according to the congressional website.

The law, meant to ease the effects of the international financial crisis on the population, spells out the requirements through which affiliates of the private pension fund managers (AFPs) can receive early pension payouts.

To be eligible under the law, men must be a minimum of 55 years old and women 50 years old, and either must have been unemployed for at least 12 consecutive months, local newspapers reported.

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Of those affiliates that fit these requirements, if their monthly pension payout is worth more than 550 soles (US$192) per month, which is considered the minimum livable wage, early retirement will be granted and pension payouts will begin immediately, the reports said.

If the payout comes to less than the minimum, however, the affiliate will receive a lump sum of 50% of their pension savings. The remaining 50% will be distributed starting at the traditional retirement age of 65.

Banking and securities regulator SBS and the AFPs themselves reportedly support the law, as does the executive branch, and the measures should come into effect by the end of the year or January of 2010 at the latest, according to the papers.

The economy and finance ministry (MEF) and SBS calculate that initially, at least 20,000 people will qualify for early retirement, while between 120,000 and 180,000 will qualify for the 50% lump sum payment, the reports say.

"Some have argued that [lump sum payouts] will have negative effects on investment instruments that AFPs must sell in order to make the payouts, or on AFPs' capital levels, but any such effects would be temporary," official paper El Peruano quoted congressional economy committee president, Luis Galarreta, as saying.