An alleged promise to nationalise close to $27bn worth of pension fund assets has made the occupational pension system a major campaign point in Peru's presidential election

Peru's pension funds together hold more assets than those in Belgium or Austria and it is also a pensions market that has been growing rapidly, boasting more than seven times as many savers in 2010 than at the beginning of the private pension system in 1993.

Left-leaning candidate Ollanta Humala's promise to establish a public pension plan that requires auto-enrolment, created jitters in the market out of concern that Humala could raid the private pension system to fund the public retirement safety net. Humala won the first-round of voting and faces a run-off with Keiko Fujimori in June.

Humala has sought to ease concern by saying "I guarantee we won't touch the pension funds" although given the fractious nature of Peruvian politics this pledge has failed to fully qualm the nerves of the funds and Humala's electoral opponents.

Felix Jimenez, the economist who drafted the manifesto for Humala's Gana Peru party also denied any pledge to seize pension funds assets had been made in speaking to newspaper La Republica. Jimenez said "It doesn't say that in any part of the manifesto. Out of principal and respect the savers we never considered using their savings because they are protected by law. This fib is part of a campaign of fear by opponents of our candidate."

Humala's party state that they want to make the public pension system better fit with the private one to reduce poverty in old age. They are not shy to criticise pension funds, however, with Jimenez saying that the private pension system "hasn't been able to extend its coverage and depends entirely on formal employment. It is a widespread opinion that they charge the highest fees in South America."

He further criticised recent contribution increases that private pension funds have demanded and also said "they don't operate competitively as they form an oligopoly." Experts allege that sections of the highly-hostile Peruvian media have been exploiting this ambiguity to claim the candidate intends to seize pension assets just as Argentine President Christina Kirchner did in 2008 to help pay off that country's national debt.

Nervousness at the possibility of asset seizures has not induced total panic amongst pension funds though, with most commentators expecting Humala's occasional anti-capitalist rhetoric to win votes but likely to end up being diluted in government. After his win in the first round of voting wiped 8.9% off the value of the Lima stock exchange in one week, the massive Prima AFP pension fund (worth over $9bn) began increasing its holding of local equities in the expectation that the market had overreacted.

Prima AFP's head of investments told the press that the current nervousness combined with the good long-term prospects of the booming Peruvian economy made the national equity market very attractive.

First published 05.05.11

dbillingham@wilmington.co.uk