Observation (CEACR) - adopted 2011, published 101st ILC session (2012)

Social Security (Minimum Standards) Convention, 1952 (No. 102) - Peru (Ratification: 1961)

The Committee notes the report submitted by the Government on 3 September 2010; the comments submitted on 14 September 2010 by the Coordinator of the Trade Union Federations CUT–GCTP–CTP–CATP; the comments submitted on 28 August 2010 by the General Confederation of Workers of Peru (CGTP); the Government’s reply of 15 October 2010 to the observations made by the Coordinator of the abovementioned federations; the comments of 18 November 2010 by the National Confederation of Private Business Institutions (CONFIEP) (Chamber of Commerce of Lima); the Government’s new report submitted on 19 September 2011; the comments on the Government’s new report submitted on 23 September 2011 by the Single Confederation of Workers of Peru (CUT). The Committee thanks the Government and the social partners for having maintained a substantial and constructive dialogue on the questions raised in its general observation regarding all the social security Conventions ratified by Peru (Nos 12, 19, 24, 25, 35 to 40, 44 and 102). The Committee trusts that the dialogue will facilitate formulation of a national strategy for the consolidation and sustainable development of the social security system that will enable the State to make full use of the potential afforded by international social security standards, with a view to securing sound administration of social security schemes and gradually extending coverage to the whole population. In this context, the Committee wishes to draw the attention of the Government and other interested parties to the following matters:

1. Observance of the basic principles laid down by the international Conventions on social security

The Committee notes the opinion expressed by the CGTP, which is reflected in the General Survey of 2011 on social security instruments (paragraph 545), namely, that as a result of a strong tendency towards privatization in the 1990s, the social security system violates the principle of collective financing of benefits, both in the private system and in the public system; the level of the benefits paid is not sufficient to guarantee minimum compensation throughout the contingency and there are no technical criteria for the adjustment of pensions; there is no democratic participation of workers in the administration and management of social security; there are serious deficiencies in the mechanisms for complaint and appeal concerning entitlement to social security benefits. In view of these repeated allegations, the Committee considers that the Government needs to draw on all its technical knowledge to review the structure of the national social security system in the light of the fundamental principles of good governance established by the international community during the past 60 years, namely:

The principle of collective financing of social security. According to this principle, the cost of benefits and the cost of administering them shall be borne collectively by way of contributions or taxes (Article 71(1) of the Convention), and the total of the insurance contributions borne by the employees protected shall not exceed 50 per cent of the total of the financial resources allocated to the protection of the employees (Article 71(2)). In contradiction with this principle, under Peru’s Private Pension System (SPP) only the insured contribute to individual capitalization accounts and the financing of old-age, invalidity and survivors’ insurance, and the administration costs are borne solely by workers affiliated to the Administrators of Private Pension Funds (AFPs). As to the National Pension System (SNP), the Government stated in its report of 3 September 2010 that this system “is based on contributions and solidarity on the part of workers and employers”, and that according to Legislative Decree No. 19990, Title III, section 6 and the amendments thereto, the system is financed by contributions from employers and employees. However, in its reply of October 2010 to the comments of the trade union federations, the Government states that the laws governing the SNP establish that the obligation to contribute falls entirely on the workers. What is more, the website of the National Supervisory Authority for Tax Administration (SUNAT) states that contributions to the Office of Standards for Welfare (ONP) (which administers the SNP) will be borne by the employee and that the employer’s role is merely to deduct contributions at source. In view of these conflicting statements, the Committee would be grateful if the Government would explain the extent to which the principle of the collective financing of social security is observed for the SNP.

Principle of democratic administration of the social security system. According to this principle, where administration is not entrusted to an institution regulated by the public authorities or by a government department accountable to Parliament, representatives of persons protected must participate in the administration or be associated and have advisory powers (Article 72(1)). The SPP affords its members no opportunity to participate in the management of the AFPs. In its report of 2010, the Government stated that it planned to examine the possibility of establishing a supervisory board, in which representatives of SPP members would participate, along the lines of the Supervisory Board provided for in Legislative Decree No. 862 respecting Investment Funds and their Administrators, and which would be able to collect information on pension fund administration from the AFPs. However, in its last report of 2011 the Government gives no account of any progress in involving representatives of the insured in the administration of the AFPs, at least in a consultative capacity. According to the CUT, there was no tripartite consensus on the SPP reforms and the objectives established were not met. The Committee observes that, paradoxically and by contrast, in the SNP the Government reinforces participation by representatives of the insured in the government bodies of the system. Thus, pursuant to section 16 of Legislative Decree No. 817 of 1996 (law on state social security), a Consolidated Pension Reserve Fund has been set up with an administrative board that includes two representatives of the pensioners, who are proposed by the National Council for Labour and Employment Promotion (CNTPE) and appointed by a decision of the Ministry of the Economy and Finance. In view of the Government’s wish to promote the principle of shared management in the SNP, the Committee would be grateful if the Government would explain to what extent provision is made for applying the principle to the SPP so as to allow participation by representatives of persons insured under the AFPs, in accordance with Article 72(1). As to participation by protected persons in the administration of health insurance, the situation is much the same as that of participation by beneficiaries in the SNP. However, the Committee notes that in the case of private insurers such as private institutional administrators of health insurance funds (IAFAS), health provider entities (EPS), institutional providers of health services (IPRESS) or private health insurance companies, no provision is made for insured persons to participate in administration. According to information on the National Supervisory Authority for Health Insurance (SUNASA) website, the EPS, which are established under the Act to Modernize Health Social Security (No. 26790), may be private, public or mixed, and their function supplements that of EsSalud, the health social insurance system. They are supervised directly by the Supervisory Authority for Health Provider Entities (SEPS) pursuant to the fourth supplementary provision of Decree No. 009-97-SA, which regulates Act No. 26790 mentioned above, though there is no requirement for private or mixed EPSs to appoint representatives of insured persons to participate in their administration. As to EsSalud, an autonomous decentralized public body responsible for administering the Health Social Insurance Contribution Scheme, the Government states in its 2011 report that the Board of EsSalud is made up of representatives of the State, employers and insured persons, the latter consisting of representatives of public sector workers, private sector workers and beneficiaries. The Committee notes with interest that the principle of shared management, laid down in the Framework Act on Universal Health Insurance, is defined as “the exercise of citizenship in the formulation and monitoring of universal health insurance policies”. Section 9 of the Regulations to that Act provides that the Ministry of Health (MINSA) shall establish the public oversight mechanisms to be developed by regional and local governments with a view to allowing people to exercise their rights under universal health insurance. Accordingly, MINSA issued Resolution No. 040 2011 establishing general policy guidelines for public oversight. However, the document mentions several Public Oversight Committees established by the Health Ombudsman while recognizing that there is no evidence as yet that they are operating at national level. These public oversight mechanisms, which are to be established by regional and local governments, will pay particular attention to universal health insurance in terms of observing the guarantees of quality, suitability and financing, without prejudice to the competence of the SUNASA. The Committee observes that these public oversight mechanisms could act in supplementary capacity but do not obviate the need to appoint representatives of insured persons in IAFAS. The Committee accordingly asks the Government to envisage the possibility of establishing a mechanism in private EPS, IPRESS, or private health insurance companies, enabling representatives of the insured to participate in the administration of these bodies or to be associated with them, in a consultative capacity, without prejudice to the public oversight mechanisms that regional or local governments may establish in due course, so as to bring the legislation into line with Article 72(1) of the Convention.

Principle of guaranteed minimum benefits. The Committee points out that the introduction of guaranteed minimum pensions should be accompanied by the establishment of a poverty line or a subsistence minimum and the increase of the minimum pensions above this parameter. The Committee is concerned by the fact that social security schemes, which are naturally designed so as to provide adequate benefits, have degenerated in many developing countries to the point that benefits are paid at levels below the poverty line; in such cases the State may be seen to be failing to fulfil its responsibilities (see General Survey of 2011 on social security instruments, paragraphs 459 and 460). The Committee notes in this context the information supplied by the Government to the effect that there are different ways of calculating pensions depending on whether they are granted under Legislative Decree No. 19990, Act No. 25967 or Act No. 27617. Pensions under Legislative Decree No. 19990 are calculated on the basis of the average insurable remuneration of the insured person and according to the number of years of contributions. Under Act No. 25967, the amount of pensions granted to insured persons who show that they have contributed for 20 full years shall be equal to 50 per cent of their reference remuneration (section 2 of the Act provides for three different methods of calculating reference remuneration based on the number of years of contributions), and under Act No. 27617, the reference remuneration is determined on the basis of the average remuneration of the 60 months preceding the last month of contribution, and the amount of the pension is determined on the basis of a table, which was not sent with the Government’s report. The Government confirms in its report of 2011 that in the SPP there is no guaranteed replacement rate. In the SNP, on the other hand, payment of pensions is insured and guaranteed by the ONP, the Consolidated Pension Reserve Fund and the national Government through the transfer of funds from the Treasury’s regular budget. However, the CUT asserts that the amount of the pensions paid is below the minimum threshold established in Convention No. 102 for wage replacement. The Committee accordingly asks the Government to indicate the minimum amount of each type of pension mentioned above as compared to the minimum amount laid down in the Convention, and to state how the amounts are updated.

The Committee also notes the measures under way to increase SNP pensions, in particular section 4(a) of Act No. 28449 providing that pensions granted under Legislative Decree No. 20530 shall be increased for beneficiaries aged 65 and over, taking account of annual cost of living trends and the financial capacity of the State. The Committee also notes in this context the forthcoming implementation of the “Pension 65 Programme”, initially to be run by the Presidency of the Council of Ministers, under which a non-contributory pension of 225 soles (PEN) (equal to approximately US$90), with an initial budget of PEN225 million, will be granted to persons aged 65 and over who have never contributed, and which will in principle be limited to the poorest regions in the country. The Committee is bound to stress the advantages to be gained from extending the system of guaranteed lower pensions to all persons of a certain age, which would enable the State to guarantee a reduced minimum old-age pension for all persons whose old-age benefits have suffered unduly, particularly as a result of the present economic and financial crisis. The Committee asks the Government to provide information in its next report on the measures it plans to take in order to extend the Pension 65 Programme to all regions of the country, together with details of its implementation and progress made.

The Committee notes the actuarial assessment, mentioned by the Government in its report, conducted by the Ministry of the Economy in connection with the extension of a minimum pension to all low-income residents with a minimum of 15 years of contributions, with the aim of assessing the impact of the measure recommended by the Committee of Experts for the introduction of a pension consistent with Article 29(2) of the Convention. The Committee asks the Government to provide a copy of the actuarial assessment conducted by the Ministry of the Economy.

The Committee notes the information supplied by the Government to the effect that in 2009, the SNP’s Consolidated Pension Reserve Fund broke even, in that it exceeded the maximum level reached prior to the 2008 crisis. As to the SPP, the Supervisory Authority for Banking, Insurance and AFPs has indicated that pension funds have been recovering and have even exceeded the maximum level reached prior to the international crisis. The Committee notes the Government’s rather optimistic evaluation to the effect that the pension system appears to have overcome the negative effects of the financial crisis. The Committee would be grateful if the Government would confirm that this is indeed the present status of the pensions system, and to indicate the measures taken or envisaged to support persons who were compelled to retire at the height of the crisis and who sustained heavy losses in their pensions.

Principle of granting benefits throughout the contingency. The old-age benefits managed under the private administration system are calculated on the basis of the capital accrued in the individual accounts of the insured. Once that capital is exhausted, the entitlement of the individual account holder may cease to exist and insured persons exceeding the average life expectancy could be deprived of their sole source of income (see section 45, “Programmed Retirement” of the Act (Single Harmonized Text) on the Private Pension System). Such a situation is not consistent with the principle laid down in international Conventions whereby benefits are to be paid throughout the contingency at a guaranteed minimum rate.

2. Improving the operation of the public pension system

In its previous observation the Committee took note of allegations that no up to date record of members’ contributions exists and that the burden of proof regarding the contributory period lies not with the ONP but with the insured person and that procedures for granting pensions are extremely complex. In its report the Government refers to various measures taken by the ONP that have led to improvements in the way the State administers social security. Noteworthy among these are: the substantiation of decisions; improvement of the checking and accreditation of contributions in that failure by the employer to deposit with the ONP the contributions withheld from wages does not affect workers, who need only present their work certificates in order to obtain the benefit from the ONP; the efforts made to operate a single contributions register (RIA) and the adoption of measures to optimize computer systems; measures to simplify the processing of benefits due – the process consisting of 11 stages has been replaced by a four-stage process. However, the Committee notes the information supplied by the CUT to the effect that in around 15,000 cases, pension processing took more than 306 days on average, and that over 90,000 files were awaiting “rubber stamping”, i.e. recognition of the pensioners’ eligibility. The CUT further states that the ONP’s unwarranted refusal to entertain beneficiaries’ claims and the role played by the external legal advisers hired by the ONP were responsible in part for the fact that claimants had to apply to the courts to assert their pension rights.

The right to have a recourse duly examined has been considered by the Committee as falling under the general responsibility of the State to guarantee the proper administration of social security institutions. Any dysfunctions in social security recourse procedures therefore have to be duly addressed by the State in conformity with the principles guaranteed by international social security law. The Committee has also observed in this respect that the existence of appropriate recourse procedures should not be used abusively by forcing beneficiaries to file claims against decisions systematically denying their right to benefits. The Committee points out in this context that according to Article 71(1) of the Convention, claimants shall have a right of appeal in case of refusal of the benefit or complaint as to its quality or quantity (see General Survey of 2011 on social security instruments (paragraph 433)). The Committee accordingly observes that the ONP’s unwarranted refusal to entertain the applicants’ claims offends against the right of claimants to have access to simple and rapid complaint and appeal procedures, particularly where simplicity and promptness in such proceedings are essential because in most cases the claims are for social security benefits that constitute the claimants’ sole economic support. The Committee further points out that the general principles laid down in international social security instruments, which call for recourse procedures to be simple and rapid, also militate in favour of the harmonization of the applicable procedural law throughout dispute settlement procedures in social security matters. Dispute settlement bodies should therefore ensure that individual claimants have reasonable opportunities to assert or defend their rights. The Committee notes in this connection the ruling on Case No. 05561-2007-PA/TC of 24 March 2010, in which the Constitutional Court found the ONP’s participation in court proceedings pertaining to payment of statutory or accrued interest on pensions to be an “unconstitutional state of affairs”, and ordered the ONP to waive such proceedings. This decision by the Constitutional Court is of great significance as the ONP will have to waive proceedings that concern the payment of statutory or accrued interest, which will allow cases to be dealt with more expeditiously. Citing the Constitutional Court’s ruling, the CUT also states that the ONP should likewise desist from challenging workers’ court claims pertaining to evaluation and payment of old-age benefit, since the proceedings in such cases are cumbersome and delay the effective exercise, by thousands of workers, of the right to receive old-age benefit. The Committee therefore asks the Government to provide information on the repercussions the abovementioned ruling of the Constitutional Court has had in practice, and urges the Government to speed up the process of evaluation and payment of benefits due to workers by simplifying complaint and appeal proceedings, thereby giving effect to Articles 70(1) and 72(2) of the Convention.

3. Combating evasion of the obligation to join the social security system

According to a study conducted by the ILO (2009), in 2007 only 35 per cent of the wage earning economically active population had old-age, invalidity and survivors’ coverage. As regards health protection, only 36 per cent of the total population was covered. Overall, these figures reflect the worrying situation that has arisen due to evasion of the obligation to belong to the social security system, especially on the part of large enterprises in the formal economy, and indicate a need for the State to reinforce significantly the supervision carried out by the national body responsible for the collection of taxes and social contributions, SUNAT. The Committee also notes the measures undertaken by the Government to improve collection and supervision in respect of the payment of contributions by employers by setting up a unit in EsSalud to monitor the debiting and auditing practices of employers that are supervised and audited by SUNAT. The Committee also notes the efforts made by EsSalud to get SUNAT to attach greater importance to the Strategic Plan to supervise taxes and monitor payment of contributions, and the Inter-institutional Cooperation Agreement concluded with the Ministry of Labour and Employment Promotion (MTPE), whose objectives include measures to improve the detection of practices by employers that affect workers’ access to payroll records and health social security. The Government also refers to the MTPE’s efforts to bring the workforce into the formal economy through inspection, which have led to a significant increase in the social security contributions collected in recent years. The Government also reports that a Technical Committee analysed measures to improve the SNP and the SPP and enable the two systems to coexist in the medium and long term, thereby extending the level of coverage.

While noting the measures taken by the Government to curb social security evasion by setting up close cooperation between social security institutions and other public services responsible for supervision and enforcement, such as the tax authorities and the labour inspectorate, the Committee is bound to stress the magnitude of the problem the Government has to tackle given the extent of social security evasion. According to information provided by the CUT, the classification of offences and the penalties for social security evasion by employers are not sufficiently dissuasive. In the SPP, every month AFPs file 8,000 complaints with the courts against enterprises that fail to record employees’ pension contributions, and up to the year 2008, 300,000 complaints had been lodged against enterprises that deducted their workers’ contributions but failed to transfer them to AFP individual capitalization accounts. The CUT also refers to two bills (2866-2008CR and 2890-2008-CR) proposing that SUNAT take on the collection and auditing duties pertaining to AFPs, so that there would be a single social security register covering the SPP and the SNP. The Committee points out that the obligation to improve collection of social security contributions falls within the State’s general responsibility for the proper administration of the institutions and services involved, in accordance with Article 72 of the Convention. The Committee accordingly asks the Government to step up its efforts to secure supervision of the payment of contributions by employers, to adopt measures to prevent non-compliance by intensifying inspection, and to secure closer cooperation between social security institutions and the tax authorities (such as the measures proposed by EsSalud to SUNAT). The Committee also asks the Government to provide information on the progress through Parliament of the abovementioned bills that seek to make SUNAT responsible for collection and supervision in both systems (SPP and SNP).

The Committee welcomes the promulgation of the Framework Act on Universal Health Insurance, No. 29344 (“AUS Framework Act”) laying the foundations for the extension of health insurance to all residents in Peru, so as gradually to achieve universal coverage based on solidarity and participation. The Committee nonetheless observes that because there are so many health service providers, whether public, private or mixed, it is difficult to secure sound administration of all the service providers participating in the universal health insurance process. It should be pointed out that the law establishes a National Health Insurance Supervisory Authority responsible for safeguarding and guaranteeing the right of every person to full and progressive access to health insurance based on the principles of universality, solidarity, unity, comprehensiveness, equity, irreversibility and participation. It is nonetheless worth noting that while in the rest of the world there is a trend towards unification of health service providers, the AUS Framework Act provides for at least nine options for insurance, by public, private or mixed bodies. The Committee suggests that the Government might look into simplifying the provision of health insurance in the interests of harmonizing and rationalizing health services and so contribute to better administration and greater efficiency in such services. It also asks the Government to send information on the progress made in extending the coverage of universal health insurance, by economic sector and geographical region.

4. Measures for micro and small enterprises

The Committee recalls that when Peru ratified this Convention in 1961, it availed itself of the possibility that the Convention affords to any Member whose economy and medical facilities are insufficiently developed, of applying the provisions to only 50 per cent of the workers in enterprises with more than 20 employees instead of 50 per cent of all employees (Article 3 of the Convention). States that opt for the abovementioned exception must indicate in their periodical reports the measures taken progressively to extend the scope of the persons covered, specifying whether the reasons for maintaining reduced coverage subsist, or stating that they renounce the right to avail themselves of the exception in the future. The Committee asks the Government to provide this information in its next report.

The Committee notes in this context the promulgation of Legislative Decree No. 1086 introducing measures to promote the competitiveness of micro and small enterprises which enable the employees and heads of the enterprises to affiliate to the Social Pension System (SPS), which the State will subsidize in an amount equal to that paid in by the member (4 per cent of basic minimum remuneration). Under the SPS, (see section 14 of the abovementioned legislative decree), protected persons who have reached the age of 65 and who have made 300 effective contributions to the social pensions fund are entitled to retire. Section 11 provides that contributions to the SPS must be paid into an individual member’s account, to be administered by an AFP, an insurance company or a bank selected by tender. The Committee is bound to reiterate here the comments it made in point 1 of this observation concerning the basic principles of social security. Section 17 of the Legislative Decree No. 1086 allows members fulfilling the same requirements as those laid down in section 14 to apply for refund of the amounts accrued in their individual accounts plus any interest. The Committee points out that this provision is contrary to Article 30 of the Convention, since old-age benefits are to be provided throughout the contingency.

Furthermore, the CUT has informed the Committee that the SPS, established by the abovementioned decree, has not been positive for Peru’s pension system because membership is voluntary, so workers refrain from joining to avoid a reduction in their wages; that it is necessary to have reached the age of 65 and to have 25 years of contributions; that it allows applications for the refund of contributions plus any interest. The CUT also points out that the State’s contributions are not guaranteed since they depend on budgetary resources, and that at the time of writing, no such provision had been made in the budget. The Committee requests the Government to provide information on the implementation of the system established in Legislative Decree No. 1086 for the provision of old-age, invalidity and survivors’ pensions and on the resources allocated in the national budget to fund the contributions to the SPS. Bearing in mind that affiliation to the SPS will be voluntary for workers and heads of microenterprises, the Committee asks the Government to provide information on the measures adopted or envisaged to align the SPS with the provisions of Article 6 of the Convention laying down the principles to be observed by voluntary insurance schemes (supervision by the public authorities or joint administration by employers and workers, coverage of a substantial part of persons with low income, and compliance, in conjunction with other forms of protection, where appropriate, with the relevant provisions of the Convention.