Principal Financial Group Inc. and MetLife Inc. are the latest targets of a Chilean protest movement that seeks to overhaul the private pension system imposed during the dictatorship of Augusto Pinochet.
The movement is calling on Chileans to pull their money out of AFP Cuprum SA and AFP Provida SA, owned by Principal and MetLife, respectively, and move it to any of the other four pension fund managers in the country. The two U.S. companies have been accused by lawmakers of using legal loopholes to avoid paying $400 million in taxes when they bought the two pension funds in 2012 and 2013.
"We’ve decided to call for a move that could, in one blow, finish with a third of the pension funds," Luis Mesina, a spokesman for the movement, said in a phone interview. "They were taken over through illegal operations set up with the sole purpose of paying less taxes."
After initially approving the takeovers, Chile’s pension regulator is now reviewing the purchases, and an annulment of the two deals is within its powers. There is no deadline for the investigation, which was ordered by the courts. Provida is the largest pension fund manager in Chile with $47 billion in assets while Cuprum is the third largest with $36 billion.
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Provida denied any wrongdoing in its takeover by MetLife and said, in a letter to its clients, that its actions have been in line with current law and carried out under the strictest ethical standards. The protest movement’s call "won’t deviate our efforts from improving your pension," the letter said. Cuprum declined to comment for this story, according to an external press relations person who asked not to be named.
The protest movement, known as No + AFP, hit the headlines earlier this year when it brought hundreds of thousands of people onto the streets, far more than many had expected and catching the industry and the government by surprise. The AFPs, as the pension funds are known, pay "miserable" pensions, Mesina said.
Since their creation in 1981 during the Pinochet dictatorship, the AFPs have amassed more than $170 billion in assets under management. However, last year, the average pension was $400 a month, with 40 percent of people receiving between $160 and $260. The government has now said it will make employers contribute to the system as well as workers.
The AFPs agree that the system needs improving, while saying the low average pensions are due to longer life expectancy, people’s failure to save throughout their working life and diminishing returns on assets.
Fernando Avila, operations manager at the AFP Association in Santiago, dismissed the call to change pension funds. "From the beginning of the system workers have been able to switch between fund managers. More than 500,000 did so last year," he said by phone from Santiago. Abandoning Provida and Cuprum when an investigation is ongoing "is reckless," Avila added.
Copyright Bloomberg 2016