The main activities carried out by the Pension Fund Administrators in order to fulfill their corporate purpose, may be summarized as follows:
i. Administration of Individual Accounts: One of the key tasks of AFPs is the management of their members’ individual accounts (capitalization, voluntary savings, and compensation savings), in which they must register the pension contributions of workers, both mandatory and voluntary. The documentation generated as a consequence of the management of individual accounts is held in a pension file that is used to record member information. There are two procedures for collecting contributions: the first is based on paper documents and payments by check, while the second involves online payment. In the first case, contributions may be collected in AFP offices or in subcontracted institutions. AFPs may sign contracts for the collection of pension contributions with banks, Family Allowance Compensation Funds (Cajas de Compensación de Asignación Familiar, or CCAFs), or other institutions expressly authorized by the Superintendence of Pensions.
In the online pension payment system, employers or self-employed workers send two simultaneous electronic transfers to a website: the first is the payment spreadsheet (which is immediately transmitted to the receiving AFP) and the second is the payment order addressed to the bank (which has an agreement with the institution providing the internet service) in which the payer has a debit arrangement from his/her current account. In order to implement this system, many websites have been set up to receive payments at different pension institutions, such as: AFP, Isapres, CCAFs, Employee Benefit Societies (Mutuales de Seguridad), AFC, IPS and FONASA.84
In regards to the management of individual accounts, AFPs must also carry out a series of other activities: they are obliged to take the necessary steps to collect mandatory and voluntary contributions owed to their members by employers, and must carry out all the tasks involved in operating the individual accounts, such as accrediting contributions and clarifying delayed payments.
Meanwhile, Administrators with a net worth of 20,000 UF or more may offer their services to other AFPs in terms of collecting contributions and depositing them in the corresponding individual accounts, according to the instructions given by each institution. ii. Pension Fund Investment: The Administrators must decide how to invest the resources of
their members and then implement such decisions by investing in financial instruments authorized in DL 3,500 or by the Superintendence of Pensions.
Administrators must comply with the provisions contained in the current regulations, which are designed to protect yield and security in the investment of workers’ funds. These provisions involve, for example: acquiring only securities which are specifically authorized by the law and current regulations, complying with the limits per instrument and per issuer established by law and in the Regulations on Pension Fund Investments,85 complying with the regulations on conflicts of interest in such investments, maintaining the Administrator’s Cash Reserve Ratio, which guarantees the mandatory minimum yield, implementing policies on investment and resolution of conflict of interest for each type of Pension Fund they manage, among others.
iii. Granting and Managing Benefits: AFPs must grant their members the pensions established by law as soon as they meet the requirements that entitle them to receive them. In this sense, the current regulations oblige Administrators to process these pension benefits in a timely manner.
AFPs must also take out a Disability and Survivorship policy with an Insurance Company and may carry out the procedure for obtaining the Recognition Bond and its complement on behalf of their members. A public tender is conducted to select one or more Insurance Companies that may provide this service.
iv. Service and Information: In order to provide a good service and attract members, Administrators maintain a national network of branches; at present the number of branches in the industry amounts to 230 agencies, of which 13% are in the Metropolitan Region. The law stipulates that the customer service offices of AFPs may not be shared with other institutions of the business group to which they belong, in order to avoid conflicts of interest and distortions that may contradict the goals of the pension system.
AFPs also have specially trained agents for jobs involving direct contact with members, who process transfers from one AFP to another, provide information on-site and help members resolve pension problems, among other functions.
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AFPs also send written information to their members, some of which is mandatory (such as the four-monthly statement), or distribute it through their network of branches or the internet.
All AFPs must provide a website containing the most essential information on the specific Administrator: its general balance in the last fiscal year, its net worth, Pension Funds and Cash Reserve, the value of the shares of each Pension Fund, fees and additional contribution charged, and the composition of the investment portfolio of each Pension Fund. They are also obliged to maintain an information board with this information at each customer service office.
v. External Activities: Finally, it is worth mentioning the advising activities and investments in pension matters that some Administrators are carrying out abroad with their own resources, within the legal framework that allows them to set up subsidiaries in the country to provide services or to invest abroad.
In June 2009, the participation of Chilean AFP subsidiaries in Pension Fund management companies abroad was as follows:
TABLE V.1
INVESTMENT IN AFP BRANCHES ABROAD (As of June 2009)
Source: AFP Financial Statements