AFP Habitat mulls hiking variable commission due to reform

Chilean pension fund manager AFP Habitat is mulling hiking the variable commission it charges affiliates as a recently announced reform bill proposes cutting fund managers' fixed commissions. Chile's six pension fund managers (AFPs) charge their affiliates a variable commission that ranges from 2.23-2.55% of gross salaries. However, only four of them - including AFP Habitat - charge a fixed monthly commission, which varies from 320-690 pesos (US$0.60-US$1.30). "If [fixed commissions were] scrapped, we would have to adjust our costs. That may include raising variable commissions, accepting a lower margin or improving the business' efficiency," AFP Habitat chairperson José Antonio Guzmán told reporters. The executive also said the eventual scrapping of fixed commissions might lead to AFPs competing more for higher-income individuals. On December 7, the government unveiled its long-awaited pension reform bill to modernize the 25-year-old defined contribution system as well as the social security pillar. One of the reform's main objectives is to boost competition in the sector, by allowing banks to create direct AFP subsidiaries without having to set up separate sister companies. "We certainly missed the fact that the reform did not mention the possibility for AFPs to outsource some of their account or fund management duties, which is key to foster competition in the sector," Guzmán said. Guzmán also said that one of the most controversial pension reform proposals - to tender new affiliates to the AFP offering the lowest commission - is unconstitutional and AFPs could turn to the country's constitutional tribunal to impede it. The bill in its current shape would see AFPs compete annually for the approximately 240,000 new affiliates who enter the private pension system under the condition they would then charge the same commission during a 18-month period. However, affiliates would be allowed to change during that period if another AFP's profitability makes up for the difference in price. AFP Habitat was Chile's second largest pension fund manager as of end-November with US$20.3bn in assets under management. It is jointly controlled by Citigroup (NYSE: C) and the local construction chamber.