What are the AFPs? define a concept in which the types of pensions in certain Latin American countries are considered, learn more about how they work by reading the following article.
To know what are the afps?, it is important to know different forms of investment
What are the AFPs?
In every country in the world there are so-called pension funds, which serve to create protection for civil servants, public and private employees of a nation. In this case we will see the AFPs directly linked to the activities carried out in Chile; it is important to know how they work, what they are for and how they operate in the society of that country.
Meaning and importance
The acronym AFP stands for “Pension Fund Administrators” which is a government organization in charge of managing the necessary resources to maintain the retirement and pension system of the different workers and officials of Chilean society.
Its goal is to manage the money of all workers through the management of processes generated through the contributions that these officials make month after month. The funds are directed to capitalization accounts that can be used in the future to finance all kinds of pensions and other activities.
They also manage the money to compensate retirement and pensions for disability, survival and even cover funeral expenses. When we make this description, many people may think that they already know what the AFPs are. However, there is still a lot of fabric to cut.
These funds also receive an injection of resources from the state, since their purpose is to seek the well-being of retired officials and pensioners. The resources generated by this fund are enormous amounts, where the companies in charge of managing them place them in the stock market and other investment markets to seek a higher return.
Likewise, some companies that manage these funds are forced to invest part of the resources and savings of the people in various local financial instruments. The intention is to seek long-term profitability in each of the accounts, however this service is not free, and the workers themselves must consider paying monthly commissions for the use of the money.
Another part of the obligations of the workers with the AFPs consists of paying an amount at the time of retirement, the idea is to obtain the amount of their savings made in all the years of work. The Chilean stadium requires each employee or official to save 10% of the monthly salary.
However, this amount is unreal, since the administrative management and operating expenses carried out by the companies that manage the AFPs consider the disbursement of service expenses above that 10%.
In the following article What is the best afp in Chile?, you will know better the performance of some companies related to this topic.
Who chooses the FP?
As of 2010, the decision of who chooses where to invest the pension fund is regulated by Chilean law. It establishes, for example, from 2010 to 2018 that the company Plantival manages the funds. After this year, another tender was held where 6 companies appeared, which are the ones that manage the AFPs.
Previously, the cobbled had the power to decide where to invest their funds. However, at the end of the bidding period, the official himself decides in which company to place the funds. For this, the state makes suggestions to the various officials so that they choose the one that best meets their financial needs.
Who manages it?
Since the beginning of its operations, the AFP system in Chile has undergone many changes in all aspects, regulation, administration, operating and management amounts; in short, a series of changes that has caused problems for many people.
These variations and fluctuations in management and organization have meant that there are currently 6 AFP management companies. When the system was created there was only one company, so today there are the following:
Planvital was one of the first to manage it and today it continues to be part of the companies that manage the AFPs, we also have AFP Cuprum, AFP Capital, AFP Modelo, AFP Habitat and AFP Provida; all with social denomination in Chile.
Structure and plans
Like any pension fund, the system allows certain conditions to be established and plans to be offered to members. In this aspect, the AFPs are dedicated to fostering financial situations in order to protect their retirees, pensioners and the disabled.
One of the main goals of the fund is solidarity, it seeks to prevent the state of poverty in which a worker may fall after their useful life. It is important to consider aspects that try to maintain the standard of living of senior citizens.
On the other hand, a contributory plan is added in which the worker himself capitalizes his savings individually, that is, the benefits are paid directly to his account, so that when he proceeds to retire he can count on an amount to be able to maintain a status acceptable life.
One of the plans offered by the AFPs is the way in which the worker carries out the capitalization, for that the system has implemented the so-called APV, which is a Voluntary Pension Savings. It consists of a functional process of voluntary savings accounts to encourage and stimulate people to save.
To learn more about this topic, we recommend reading the article The Best Examples of Investment Funds , serves as a tool to select a good signature.
Where are the funds invested?
The managing companies of the AFPs invest the amounts in the entities assigned by the Central Bank of Chile and the Superintendency of the AFPs. To do this, they establish what type of investment and how the entire process should be carried out as a protection measure for workers.
Investment in fixed income
One of the suggestions is to make the investment in securities of the Central Bank of Chile, as well as in the general treasury of the Republic. The investment must be placed in fixed-term deposits, in any national banking entity, make promissory notes or mortgage letters.
Investment in Variable Income
This type of investment is different but always maintaining the parameters of making them in the financial entities of the country, therefore the suggestion is that they can invest the funds in shares in the stock market, bonds of any type, Mutual Funds and of any type investment and bank certificates.
This information can be expanded by clicking on the following link Investment instruments , where procedures of this type are clearly detailed.
Control and inspection
There is the superintendency of the AFPs or pensions, which is in charge of supervising and regulating the actions of the companies linked to their administration. There are several regulations and standards such as DL 3500, which establishes the conditions under which investments must be made and how the benefits must be distributed in the workers' accounts.
The superintendence is directly linked to the state through the Ministry of Labor and Social Welfare. On the other hand, the Technical Council of Investors together with other organizations manage the legal and administrative activities of the companies.
Types of investment
The funds managed through the AFPs can be invested, as we saw above, in fixed or variable income. However, they differ in the amount of resources that are injected into each type of investment; the funds vary according to the financial form in which they proceed to carry out the placement of the resources.
These differences must be evaluated since they alter certain conditions when they are made in investments of greater or lesser risk. In this sense, the so-called multifunds are created: They are systems that have the capacity to manage up to 5 AFP pension funds, differentiated by their portfolio characteristics, they are denominated by the letters A,B,C,D and E.
Multi-funds make it possible to increase the value of pensions and ensure that each worker has a good return. Each affiliate can decide what type of investment they can make taking into account several alternatives according to their preferences.
Conditions and benefits of multi-funds
Each amount included in the multi-fund system is made up of different characteristics depending on the type of investment. For example, the type A fund is used for equity investments, which implies a higher risk and a long-term return; while type E funds (which are the lowest on the list) have greater capacity for fixed income investment.
The proportion is then established according to the type of bond which will be invested in fixed or variable income, changing certain characteristics of risk, capacity and return. Each type of fund allows you to consider different conditions, in this case type C funds are less risky and have the ability to return in a shorter period of time.
savings quotes
Mandatory calls are regulated by law, based on considering a worker when he reaches the age of 55, men and women at 50, to be able to choose between the 5 types of fund for his investment. For its part, the law also establishes the conditions for non-pensioners.
In this case, 56-year-old non-pensioned men and 51-year-old non-pensioned women have the option of opting for any fund B, C, D and E, while pensioners only have the option of fund types C, D and E. As we can see, they are classified according to age and type of pension.
Voluntary Savings Quotes
For this type of workers there is no exception, in this case the investment can be made in any of the five types of bonus. It involves those workers who wish to enjoy the system without having worked in any institute, state or private organization in the country.
Can you change the background?
The law does not contemplate limitations to make changes, it only contemplates that it is mandatory to select even one of the 5 companies that manage them. For this reason, it is possible to change the AFP and according to the AFP pension superintendency law, it can be done whenever the worker wishes.
https://www.youtube.com/watch?v=vhR33es5Qz8
Obviously, you must comply with a series of steps that allow the process to be formalized, leaving a record of the request. The first thing is to make a statement with the company that manages the AFP, making the clarification and notifying the reason for the change; The application process can be done in three ways:
- Personal and going with the communication to the company's offices
- Requesting participation through an agent of the superintendence who carries out all the steps of sending and processing the communication.
- By means of the internet by making an application opening on the company's page and also through the superintendency's website.
It is important to mention that these processes are all free, and no official is able to request any disbursement for commission of service or operating expenses. The worker must be aware, the steps to follow are the following:
- Place the signature on the transfer order when it arrives or is withdrawn.
- Sign the affidavit on the prohibition of financial compensation
- We proceed to choose the type of fund where the savings will be placed. If you do not choose any company, the system automatically assigns one of the 5 administrators.
- In a period of no more than three days, the process will have been consolidated and will have a new management of the savings.
The bills
We already know the types of funds and who manages them, so we can have the basis to answer: What are the AFPs? However, there are still some unknowns, such as knowing in what type of accounts the money is placed to make the investment.
In this aspect, the Chilean system offers only three types of account where money must be placed for administration, each account with special conditions that allow access to different types of investment, let's see:
Individual capitalization
It is an account where the name of the affiliate or worker is registered, it is mandatory to have it and it does not matter if he or she is independent or has been part of state institutions. The corresponding money is deposited in this account and it has the limitation of having mobility when the official retires.
Voluntary Savings
It is an independent type account, the affiliate can make deposits voluntarily, where he can process when he withdraws his savings. The profitability of this account is linked to the general tax regime in the Law of Fixed and Variable Income.
Compensation
It is determined by a contract, which replaces the type of legal compensation, is regulated by law in order to protect some workers who do not have a stable pension system.
Conclusion
We already know thenWhat are the AFPs in Chile??, pension system that protects workers, retirees, pensioners and the disabled. Although their administration has brought some problems, where many workers have felt cheated; some consider that it is due to a lack of information, communication and interest in how the procedures are carried out.
