Winds of change blow through Chile's AFP market

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Monday, July 23, 2018

Chile's soon-to-be cheapest private pension fund manager, AFP Modelo, made a net gain of 18,778 members from January-May.

Six players compete in Chile's private pension fund market.

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The player that currently holds the crown of the lowest-cost provider, AFP PlanVital, saw a net loss of 25,883, data from comparison website Ensimple.cl shows.

The figures correspond to the movement of mandatory pension savings pots held by existing members of the AFP system. The figures do not take into account new mandatory accounts opened over the period.

From August 1, PlanVital will charge members a commission of 1.16% of taxable income, up from 0.41% currently, while Model will charge 0.77%.

Since August 2014, new AFP system members have been automatically assigned to PlanVital for a minimum period of two years after the company won two successive competitive tenders based on the lowest administrative commission proposed.

However, after a tender to find an AFP to accept new members until 2020 received no offers and was scrapped, pension watchdog SP changed the rules. From August 1, new entrants will be automatically assigned to Modelo but are free to then change fund.

Regarding the latest figures, Ensimple.cl founder Gonzalo Reutter told BNamericas it was too early to draw definitive conclusions.

"You can see a correlation," Reutter said. "You can see clearly that PlanVital loses affiliates and that Modelo, which is going to become the cheapest, gains. But it's still early days to talk about cause and effect."

Reutter said that a key factor in terms of movement of members is the focus an AFP places on sales. PlanVital, which does not have an active sales force, has previously announced it would focus on this area.

Modelo has sales staff who visit prospective new members who register their interest with them, while the other four AFPs focus on proactively seeking clients through the likes of their contact networks.

Reutter said the next few months should prove interesting because that is when observers should see what impact PlanVital's commission hike has on members.

"August, when members of AFP PlanVital pay more and their net salary drops, will constitute a price sensitivity test," Reutter said. "If the trend strengthens, it will be an indicator that the contributors feel the pain of paying more, know their options and dare to act. It it doesn't happen, it would confirm what has been observed historically in the Chilean pensions market: insensitivity to price and inelastic demand.

"It will be interesting, because this current scenario has never arisen before; this could mark a break. On the one hand there is the size of the increase, on the other the demographics of the group affected. Owing to the tender, AFP PlanVital serves the younger section of the population, a lot of immigrants and the low-income segment. Additionally, there is increased awareness about the pension system, more information. Personally, I think this time it will be different. We'll have to wait and see."

An industrial engineer, Reutter established Ensimple.cl to help people choose an AFP, and is focused on those aged 20-45.

PlanVital did not immediately respond to an email seeking comment.

PlanVital is controlled by Chilean company Inversiones Los Olmos, which, in turn is controlled by British Virgin Islands-registered Atacama Investments.

AFP Modelo's controller is the Chilean systems integrator Sonda, through its subsidiary Inversiones Atlántico Limitada.

Commissions that Chile's private pension fund managers will charge from August. Percentage of gross monthly salary (Source: SP)