According to El Mostrador, pension fund managers' Fund E (AFP, Pension Fund Administrators) recorded a 10.4% decline between January and September. Former Undersecretary of Finance Claudia Sanhueza warned that this loss could translate into lower pensions.
To understand why this hurts, it helps to know what Fund E is. It is the most conservative of the five pension funds. It is designed for people who are close to retirement and cannot afford any shocks. It is like keeping money in the safest drawer in the house, and this time the drawer broke.
Sanhueza explained that recovering the losses would require returns above 11%. The fund's historical return is just over 5%. In simple terms, the fund would have to deliver more than twice its normal return to get back to its starting point.
The former official blamed pension fund managers for investment decisions that, in her view, breached the duty of prudence required by law. She also noted that the funds they manage are equivalent to about 60% of GDP (Gross Domestic Product, the value of everything the country produces in a year).
The Socialist Party's group of deputies introduced a bill to prevent pension fund managers from charging fees when their funds end the year with losses. The initiative also increases penalties for economic crimes linked to the management of pension assets.
Socialist Deputy Juan Santana provided figures to support the proposal. According to him, the seven pension fund managers received $616,468 million in fees during the first half of the year and distributed $328,000 million in dividends between January and October.
The Superintendency of Pensions, the body that oversees pension fund managers, is investigating all seven managers. It is examining whether they failed in their duties of loyalty and diligence in the transactions that contributed to the losses in Funds D and E.
The government is moving in another direction. La Moneda is promoting a proposal to allow pension fund managers to expand their business into Voluntary Housing Savings. The Chamber's Finance Committee approved it by nine votes to four.
Criticism also came from the business community. Juan Sutil described what happened as a situation of absolute imprudence and called for a review of the investments and the role of regulators. Susana Jiménez, of the CPC (Confederation of Production and Commerce, the main business association), acknowledged that pension fund managers took greater risks than could be expected, although the association rejects "populism".
The next front could be in the courts. Conadecus, a consumer advocacy organization, is examining legal options to seek possible compensation for affected members.
