Observation (CEACR) - adopted 2009, published 99th ILC session (2010)

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

Peru is bound by the obligations under the Social Security (Minimum Standards) Convention, 1952 (No. 102), in respect of five of the nine branches of social security (medical care, sickness, old-age benefits, maternity and invalidity), as well as by a number of other social security Conventions (Nos 12, 19, 24, 25, 35 to 40 and 44). Given that the problems of application identified by the Committee in its many comments are essentially the same for all these Conventions, the Committee considers it appropriate to make a general comment for all social security Conventions ratified by Peru. For this purpose, the Committee had recourse to a 2009 ILO study on the social security system of Peru, and also to a 2009 International Monetary Fund (IMF) working paper on the effect of the financial crisis on pension insurance systems worldwide.

Non-compliance with the basic principles of the international
social security Conventions

For many years, the Committee has highlighted the fact that the different components of the social security system in Peru do not give effect to certain principles common to the social security Conventions ratified by the country, namely: (i) the collective financing of benefits; (ii) the democratic and transparent management of social security institutions; (iii) providing benefits throughout the contingency; and (iv) ensuring a minimum level of benefits.

The principle of collective financing of social security laid down by the ILO instruments provides that the cost of benefits and the cost of administering these benefits must be borne collectively by way of contributions and taxes (Article 71(1) of the Convention) and that 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)). However, both in the private and in the public pension system of Peru, except in the case of voluntary contributions which the law allows employers to pay optionally, the insured are the only ones to contribute to individual capitalization accounts and to the financing of contributions for invalidity and survivors’ insurance. The contributions and administrative costs are also borne solely by workers affiliated to the administrators of private pension funds (AFP) and the Office of Standards for Welfare (ONP), which is contrary to the principle of joint financing of benefits established by the ILO Conventions. The Committee points out that by not respecting the principles of solidarity and collective financing, the individual capitalization accounts system is not compatible with Article 72(2) of Convention No. 102.

Convention No. 102 also requires that when the administration is not entrusted to an institution regulated by the public authorities or by a governmental department accountable to Parliament, representatives of persons protected shall participate in the administration or be associated and have advisory powers (Article 72(1)). This participation must be effective and allow the latter to influence the choices made in the investment and the management of the concerned bodies. In its latest reports, the Government agrees that the current national law does not enable affiliated members to participate in the management of the AFP. It nevertheless indicates that a discussion on this issue took place in Congress but that no conclusion was reached. The Government intends to examine the possibility of establishing a supervisory board, in which representatives of the insured would be able to participate and be empowered to collect information from the AFP on the administration of pension funds. With regard to health-care protection, while recognizing that the participation of insured persons in the administration of institutions of health providers (EPS) is not provided by law, the Government indicates that a public body – the Superintendencia de Entidades Prestadoras de Salud (SEPS) – supervises both the economic and financial activities, as well as the payment of benefits of the EPS.

The Committee notes the growing recognition by the Government of the need to strengthen the monitoring and surveillance activities as regards private social security entities. It requests the Government to provide in its next report information on the progress achieved with a view to supervising the activities of private operators by monitoring and surveillance bodies in which representatives of the insured participate. Along the same lines, given the low rate of affiliation to the social security system, the Committee requests the Government to ensure the participation of representatives of insured persons in the work of the national body responsible for collecting tax and social contributions – the Superintendencia de Administracion Nacional Tributaria (SUNAT) – and provide information in this regard.

Under the private system, old-age benefits are calculated on the basis of the capital that each insured person holds in his/her individual savings account (CIC). When the capital accumulated on this account is exhausted, entitlement to pension may disappear and the insured person who exceeds the average life expectancy could be without his/her only source of income. This is contrary to the principle of the international conventions according to which benefits must be provided throughout the contingency at the guaranteed minimum rate. It is therefore not possible to guarantee that the minimum rate set by the Convention is respected, because the level of pension paid under the private system cannot, for reasons inherent in this type of pension, be known until the time of retirement. The economic and financial crisis highlighted moreover the shortcomings of this system, as will be shown under item 3.

In addition, the Committee notes that in 2005 the Constitutional Tribunal of Peru recognized that the right to social security is a “fundamental right of legal configuration” which has an “essential core”, the violation of which by the legislature may be the subject of a constitutional complaint (Decision No. 1417‑2005 PATC of 8 July 2005). The Committee nevertheless notes that while Peru has been a party to Convention No. 102 since 1961 and that the Constitution recognizes that international treaties on human rights are part of the “block of constitutionality” (norms having constitutional value), the Constitutional Tribunal does not seem to include the principles and the minima guaranteed by Convention No. 102 into the “essential core” of the right to social security. This decision, thus, while upholding the right to social security as such, seems to devoid it of the concrete contents contained in Convention No. 102. In view of the international obligations undertaken by Peru, the Committee believes that recognition of the basic principles guaranteed by the social security Conventions of the ILO would effectively contribute to the implementation of the Peruvian rule of law based on the solidarity, participatory governance and social minima.

Malfunctioning of the public pension system

The Committee notes that the public pension system managed by the ONP seems to suffer serious shortcomings as a result of which numerous delays occur in the determination of the right to pension, causing in turn considerable judicial litigation. According to a report of July 2008 of the Defensoria del Pueblo del Perú, which is the independent public institution established by the Constitution in order to ensure respect for fundamental rights and the proper functioning of the rule of law, about 100,000 applications for determining entitlements to pension were awaiting a decision and an equally large number of cases challenging the decisions of the ONP were being considered by the courts. As per this report, the ONP is the institution against which the greatest numbers of complaints have been lodged by the Defensoria. This number is of significant importance considering that approximately 500,000 pensions are managed by the ONP and it has as many active contributors in the public pension system. The report of the Defensoria further notes that no up to date record of the contributions by members exists, that the burden of proof as regards the contributory period is not placed on the ONP, but on the insured and that procedures for granting pensions are excessively complex. The report indicates a series of recommendations to both the executive and legislative powers in order to correct the serious deficiencies mentioned above. Given these allegations, the Committee asks the Government to demonstrate in its next report how the Peruvian State assumes the full and general responsibility concerning the provision of benefits and the proper administration of social security institutions, in accordance with Articles 71 and 72 of the Convention.

Effects of the economic and financial crisis on the social
security system of Peru

The Committee notes that the Government has not responded to the 2008 general observation on the impact of the global economic and financial crisis on the social security system. It notes however that, according to 2009 statistics (IMF), the financial crisis has affected most severely the Peruvian private pension funds, which have lost an average of 32 per cent of their capitalization. The consequences are proving to be very significant, especially for insured people close to the age of retirement, because the value of the capitalization accounts has fallen sharply, driving down the level of pensions paid. The crisis has been more devastating in cases where financial investments of private pension schemes were not sufficiently regulated and where there was not a supplementary pay-as-you-go component based on the principle of solidarity providing defined benefits. The Committee considers that the Peruvian Government must be aware of the fragility inherent in the system of private management and should now consider the possibility of establishing financial mechanisms to protect funds accumulated for pension, such as insurances, funds to safeguard the amount of pensions, or the automatic transfer of individual accounts to funds where the investment risk is very low for insured persons near retirement.

The Committee notes that in order to overcome the deficiencies inherent in the private administration of the pension system, the Government established in March 2007 minimum pensions for those insured by private pension funds under certain conditions (Act No. 28991 on la libre desafiliación informada, pensión mínima y complementaria, y régimen especial de jubilación anticipada). Under this law, any person affiliated to the private pension system (SPP) who at the time of the creation of this system belonged to the public pension system (NPS), is entitled to a minimum benefit equal to that provided by the SNP or a supplementary pension if the pension from their private pension system is less than the minimum pension. The Committee notes, however, that the Act only guarantees a minimum pension for a limited number of insured persons who meet certain age requirements at the time of the introduction of the private pension system administered by the AFPs. The Committee considers that opening up the system of guaranteed minimum pensions to the entire population over a certain age would allow the Peruvian State to ensure a minimum old-age pension to all those whose level of pension risks being too low, in particular as a result of the current economic and financial crisis. The Committee invites the Government to further explore the advantages of extending the minimum pension to all residents with low incomes. The Government could, in this respect, wish to take advantage of the experiences of other countries in the region where a basic social pension of a non-contributory nature has been created, which benefits all citizens aged 65 and over who have never contributed or whose contributions are not sufficient for establishing the right to a pension.

The Committee also notes that in response to its previous comments regarding the need to reintroduce a reduced pension for all insured persons who have completed a period of at least 15 years of contribution or employment (Article 29(2) of Convention No. 102), the Government indicates that it has carried out the actuarial calculations necessary to calculate the cost of this measure to the pension system managed by the ONP. Currently, as a result of the retroactive effect of Decree-Law No. 19990, such a pension is, in fact, only paid to insured persons who have turned 60 before the entry into force of Decree-Law No. 25967, i.e. 19 December 1992 at the latest. The Government states that, given the size of the resources concerned (approximately 70 per cent increase in the national budget), it is for the Ministry of Economy and Finance to assess and decide on the implementation of this proposal. The Government is requested to draw the attention of the Ministry of Economy and Finance to Peru’s international obligation to restore the right to a reduced pension for insured persons who have completed at least 15 years of contribution or employment, in accordance with Article 29(2) of Convention No. 102, and to indicate in its next report the progress made on this matter. The Committee also invites the Government to avail itself of the technical assistance of the ILO, particularly as regards the actuarial evaluation of the impact of such a measure on the pension system.

Insufficient coverage and evasion of the obligation of
membership in the social security system

According to an ILO study, 2009, in 2007 only 35 per cent of the economically active employed population benefited from coverage for old age, invalidity and survivors, which demonstrates a significant level of evasion from the obligation to affiliate to the social security system in the formal economy. In 2006, among the approximately 2.2 million people over 65 years of age, only 500,000 were receiving old-age, invalidity or survivors’ benefits, representing a level of coverage of the elderly of approximately 23 per cent. As regards health-care protection, only 36 per cent of the total population was covered. Overall, these figures reveal the alarming situation of the evasion from the obligation of membership, particularly by large enterprises in the formal sector, and the need for the State to significantly strengthen the control exercised by the national body responsible for collecting tax and social contributions (SUNAT). By virtue of the international social security standards ratified by Peru, the Government has in fact the duty to ensure compliance with the requirement of compulsory affiliation to the social security system and is obliged to take concrete steps to improve coverage of the entire social security system. Article 5 of the Convention provides in this respect that States must ensure that the minimum percentage of membership in each branch of social security is actually achieved in practice. To achieve this result requires, among other things, providing the organs responsible for collecting contributions means to carry out their mission and providing for penalties that are sufficiently deterrent for offenders. In the case of Peru, the measures to control the application of the national legislation will be greatly facilitated by the fact that the urban labour force represents 65 per cent of the total workforce. The Committee trusts that the Government will set itself specific goals in terms of percentages of the population to which coverage will be extended within the assigned time frame, through the strengthening of its capacity to enforce the obligation of membership to the social security system, particularly as regards the urban workforce. Please provide detailed statistics on the extension of coverage of the country’s social security system for each branch of social security in both the public and private system.

Status of micro- and small enterprises

The Committee recalls that, at the time Peru ratified Convention No. 102 in 1961, it availed itself of the possibility for States whose economies and medical facilities are insufficiently developed, to apply the provisions only to 50 per cent of all employees in industrial workplaces employing 20 persons or more, instead of 50 per cent of all employees (Article 3 of the Convention). States that have used this derogation are required to indicate in their periodic reports the action taken to gradually expand the scope of persons covered and to specify whether the reasons for maintaining a reduced scope of application subsist, or whether they renounce to avail themselves of this exception in the future.

In 2008, with a view to providing coverage to most of the population working in small and medium-sized enterprises and to combating the significant level of evasion from membership and the payment of contributions by these companies, the Government adopted a Legislative Decree amending the legal regime for these companies as regards social security (DL No. 1086). The new Decree defines micro-enterprises as those employing not more than ten workers, and small enterprises as those employing up to 100 employees and a turnover below a certain amount. It establishes a special legal regime applicable to micro-enterprises where workers are not required to join a mandatory system of pension insurance and benefit from a special regime as regards health-care protection. Employers are required to make monthly contributions for each of their workers, supplemented by equivalent contributions paid by the State.

The Committee notes that, unlike health-care insurance which remains compulsory with certain adjustments, Legislative Decree No. 1086 renders the affiliation to the pension system voluntary. Given the large number of workers employed by these enterprises, it hopes that this measure only represents a transitional solution only applicable to newly created micro-enterprises for the maintenance of rights acquired under the previous regime. The Committee also draws the attention of the Government to the provisions of Article 6 of the Convention, which establishes the principles to be met by voluntary insurance schemes (control by public authorities or administered by joint operation of employers and workers, coverage of a substantial part of persons with low incomes, etc.). In light of these considerations, the Committee expects to receive information from the Government on the impact of the reform relating to the coverage of workers in micro-enterprises.

Introduction of a universal health-care insurance

The system of health-care protection in Peru is composed of the following schemes: Seguro Social de Salud (ESSALUD), Seguro Integral de Salud (providing significantly reduced benefits compared to the system ESSALUD and are financed by the Ministry of Health) and private insurances (EPS). Despite a considerable increase in the coverage of the contributory health-care social security system between 1999 and 2007, only about 36 per cent of the population benefited in 2007 from health-care coverage, and the remaining 64 per cent was not covered. In 2006, the percentage of employees covered was 32 per cent on average, with significant disparities between the public sector where the rate was 68 per cent and the private sector where the rate of coverage was 24 per cent. These rates determine Peru as one of the countries of the region where health-care coverage is generally the lowest and a country where regional inequalities within the country are most pronounced.

In recognition of this fact, the Government adopted in 2009 a framework law on universal health-care insurance (Law No. 29344 of 9 April 2009), the aim of which is to gradually extend to the entire population health-care benefits of a preventive, curative and rehabilitative nature on the basis of a basic plan for health-care insurance. This text is intended to give effect to the basic rights under the Peruvian Constitution, in particular the right to health-care protection, the universal and progressive right of everyone to social security which guarantees free access to health-care benefits provided by public, private and mixed entities, as well as the duty of the State to determine the national health policy. According to the framework law, the right to universal health-care insurance should be fully and progressively guaranteed to all residents at every stage of life, without any discrimination. The Ministry of Health is responsible for preparing the said basic plan and for creating a technical committee for the implementation of the universal health-care insurance. According to the latest information available in September 2009, the establishment of the universal health-care insurance had begun in some parts of the country, notably Apurímac, Huancavelica and Ayacucho.

The Committee notes that the introduction of a system of universal health-care insurance could, if implemented effectively, allow for the extension of health-care protection to an increasingly large part of the population. It notes however that in order to make the system of universal health-care insurance fully operational, the abovementioned law should be supplemented by technical regulations which ensure compliance with compulsory membership and contributions, especially for employees in the formal economy where evasion of the obligation to affiliate seems particularly high, progress can also be made in respect of employees in the informal economy, as independent workers, as well as the rural populations. The Committee will closely monitor the implementation of the system of universal health-care insurance and therefore requests the Government to provide information on the nature of care provided, as well as the progress made in terms of coverage of the population by economic sector and geographic region.

Developing a national strategy for sustainable development
of social security

In 2001, the International Labour Conference (ILC) reaffirmed the central role of social security and reiterated that it remained a challenge for all member States which had to be urgently addressed. The conclusions adopted by the ILC in 2001 recognize that “of highest priority are policies and initiatives which can bring social security to those who are not covered by existing systems”. To achieve this objective, the Conference urged each country to define a national strategy closely linked to other social policies. States parties, such as Peru,  to the International Covenant on Economic, Social and Cultural Rights (ICESCR), are required to develop a national strategy for the full implementation of the right to social security and should allocate adequate fiscal and other resources at the national level (General Comment No. 19 of the UN Committee on Economic, Social and Cultural Rights (CESCR), adopted in 2007). The Committee considers that the need for such a national strategy stems from the overall responsibility of the State to ensure the sustainability and proper functioning of the social security system, as established by Convention No. 102. The launch of a national strategy for the consolidation and development of a sustainable social security system would allow the State to fully exploit all of the potential offered by international social security standards to ensure the good administration of schemes and allow the gradual extension of coverage to the entire population. The Committee draws the attention of the Government to the possibility of making recourse to the technical assistance of the ILO in this regard.

[The Government is asked to reply in detail to the present comments in 2010.]