Snapshot: Uruguay’s 4 private pension fund managers

Four private pension fund managers, or AFAPs as they are known, compete in Uruguay’s pension system.

The system itself is mixed: it combines the individually funded, defined-contribution AFAP pillar and a defined-benefit pillar.

Calls have been made to overhaul pension system rules on account of the country’s aging population and the impact that this will have on its old-age dependency ratio and, in turn, government finances.

The IMF has urged the country to focus on pension reform, among other areas, to control expenses and reduce long-term debt.

Average life expectancy at birth has increased 5 years since 1996 and is expected to continue rising. Government spending corresponding to social security institute BPS rose to 32.4% of GDP in 2018 from 28.1% in 2010.

“Despite tax increases, sustained growth in current account expenditure threatens fiscal sustainability,” regional consultancy firm CPA Ferrere said in a presentation on pension reform.

Uruguay’s system is the result of a reform implemented in 1996.

Contributions to the first pillar are mandatory for all registered workers. Rules for joining the AFAP pillar – modeled after Chile's reform of 1981 – vary and factors such as salary are taken into account.

The country also has a non-contributory old age and disability pension program.

Uruguayans go to the polls in October to choose a new president, with the frontrunners center-left Daniel Martínez of Frente Amplio, center-right Luis Lacalle Pou of Partido Nacional and center-left/centrist Ernesto Talvi of Partido Colorado.

Economic and fiscal issues are set to play a prominent role in upcoming debates, as will an increase in urban violence.

Uruguay’s three major political parties recognize the need for sustainable public finances, price stability, and sound regulation of the financial system, Canadian rating agency DBRS said in a research report.

“Instead, the key question is whether the next president will be able to build a congressional coalition in support of reforms that address the country’s fundamental economic challenges. If the post-election environment is characterized by policy inaction and widening fiscal imbalances, Uruguay’s rating could be downgraded. On the other hand, if the next administration implements a durable deficit-reduction plan and introduces reforms to boost productivity, Uruguay’s rating could experience upward pressure,” the agency said.

Tackling pension reform is seen as a central task of whoever takes the reins.

The current administration – led by President Tabaré Vázquez of the Frente Amplio – has admitted the country’s social security system is unsustainable in the medium term, local paper El Observador reported this year.

Uruguay’s four AFAPs are regulated by the central bank.

REPÚBLICA AFAP (state run)

Members at the end of May: 565,516, according to central bank data.
AUM at the end of May: 298.892bn pesos (US$8.488bn)
Estimated real gross returns for the 12 months through May: 3.81% (in UR, which is indexed to salaries).

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AFAP SURA (part of the Colombian financial services giant)

Members at the end of May: 328,160
AUM at the end of May: 94.166bn pesos
Estimated real gross returns for the 12 months through May: 4.18% (in UR).

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UNIÓNCAPITAL AFAP (fully owned by Brazilian bank Itaú's Uruguayan unit)

Members at the end of May: 306,459
AUM at the end of May: 86.920bn pesos
Estimated real gross returns for the 12 months through May: 3.78% (in UR).

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INTEGRACIÓN AFAP (majority owned by Venezuelan state development bank Bandes' Uruguayan unit)

Members at the end of May: 230,324
AUM at the end of May: 49.354bn pesos
Estimated real gross returns for the 12 months through May: 3.70% (in UR).

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