CMS Expert Guide to Pensions in Peru

Peru has a two‑pillar system. The first pillar is the public pension system, administered by the government and funded mainly through social security contributions made by employees. The second pillar is the private pension system, administered by private entities and funded by employee contributions. Both systems are mandatory, and the employee must choose which system they wish to join.

The public system is a joint pension fund (employees contribute to a common fund), while the private system consists of individual accounts, so the contributions made by each employee are deposited in their individual account.

The private pension system offers different alternatives so that the member chooses one of them when reaching retirement age. Those alternatives are basically the following:

• The Programmed Retirement, in which the pensioner keeps ownership of the fund that they saved and every month withdraws their pension from the fund. The managing entity of the fund continues to generate investment returns and the pension is recalculated every year. This pension is payable in national currency.
• Life Annuities is another alternative, which consists of paying pensions until the member dies. Its amount is less than in the Programmed Retirement, but the pension is adjusted periodically and can be paid in different currencies. Although the member loses ownership of the fund, they are entitled to a lifetime pension from an insurance company that assumes the longevity risk.
• There are also different combinations of these two basic alternatives.

Withdrawal of up to 95.5% of the fund, in which case the member is the one who administers their fund and assumes the risks, being able to choose to withdraw less than 95.5% and use the balance to receive a pension in any of the aforementioned provisions.

Yes. Employees who are registered in the payroll of any company are obliged to choose between one of the two legal systems of pensions and to make contributions to the fund they have chosen. Employers are obliged to withhold their corresponding contributions from their salaries and to pay such contributions directly to the pension fund entities.

The plans are specifically provided for in the law and must be subject to it.

Yes, a plan can only be operated by the entities specified by law. The public pension system is in charge of a state entity provided by law. In the private pension system only private pension administrators authorised by the Superintendency (AFP) are legally authorised to offer pension alternatives to employees.

Yes. The law establishes mandatory percentages of discounts for contributions to pension funds.

The law establishes the requirements for private pension fund managers (AFP) to invest the contributions collected to finance the pensions that will be paid to them.

7. What age are benefits taken?

The retirement benefit is granted in both systems as of age 65, but the law contemplates several cases in which it may be granted earlier. Disability and survivors’ pensions are not subject to this requirement.

The affiliated employees themselves, through their contributions to an individual capitalisation fund.

Every taxpayer is required to obtain a tax identification number.

No.

Dividends, interest, commissions and capital gains received by the pension funds are not subject to income tax.

12. Are benefits taxed?

Pension benefits are not taxed, but the pensioner must contribute 4% of their pension for social security in health.

Employer voluntary contributions to private pension funds are tax‑deductible for the purpose of determining income tax as operational expenditure. Employees do not have to pay tax or social contributions on employer contributions.

There are no upper limits on benefits or contributions.

The regulator is the Superintendency of Banks and Insurance (SBS), a government body with extensive powers to check whether the investments of pension funds and pension schemes comply with relevant legal requirements.

Pension providers have legal obligations to provide information. In addition, the SBS may require them to provide specific information, documents or explanations whenever it considers it necessary.

The SBS supervises the investment of pension funds.

No.

The law contemplates several cases in which persons may be eligible for an early retirement pension, depending on the type of work they perform and provided they meet certain requirements.

No.

No.

Foreigners who have worked in Peru and contributed to an AFP because they were registered on an employer’s payroll may withdraw their contributions under certain circumstances and by complying with requirements established by law.

In certain cases, the law allows affiliated employees to change their pension plan or to switch from the public to the private system, or vice versa.