1. “COMPARED CONTRIBUTION COLLECTION MODELS”
Superintendencia de AFJP, Julio de 2007
“COMPARED CONTRIBUTION COLLECTION MODELS”
HUGO BERTIN
Strategic Studies and Statistics Manager, AFJP Superintendency, Argentina
“The future of pensions: development of the individually funded programs”
FIAP, Lima, May 28 and 29, 2008
Gerencia de Estudios Estratégicos y Estadísticas - Dep. de Estadísticas y Análisis Previsional

2. AGENDA Social security collection process Collection systems
Design of the collection system: factors to consider
Advantages and risks of centralization and decentralization
Contribution collection in Latin America
Conclusions

3. SOCIAL SECURITY COLLECTION PROCESS
Superintendencia de AFJP, Julio de 2007
SOCIAL SECURITY COLLECTION PROCESS
The collection process phases include:
Reception of the workers’ contributions paid in by employers and self-employed workers to the bank accounts made available by the collection agencies; includes financial and information transfers.
Authentication and control of the collection in the bank accounts of the collection agencies.
Money and information transfers to the bank accounts of the pension fund managers.
The collection is integrated into the individual account management processes, the management of the investment portfolios, the processing and payment of the pension benefits and customer service to members.
Social security collection is a process in which multiple geographically dispersed actors participate: employers, self-employed workers, banks, collection agencies, pension fund managers, supervision agencies.
Gerencia de Estudios Estratégicos y Estadísticas - Dep. de Estadísticas y Análisis Previsional

4. SOCIAL SECURITY CONTRIBUTION AND COLLECTION SYSTEMS
Superintendencia de AFJP, Julio de 2007
SOCIAL SECURITY CONTRIBUTION AND COLLECTION SYSTEMS
Integrated contributions: social security, work hazards, unemployment insurance, health , taxes.
Separate contributions.
Centralized collection: one public or private agency is responsible for the collection and distribution of the contributions to the pension fund managers.
Decentralized collection: each fund manager collects directly or through agreements with collection agencies i.e. banks – members’ contributions.
Gerencia de Estudios Estratégicos y Estadísticas - Dep. de Estadísticas y Análisis Previsional

5. INTEGRATED vs. SEPARATE CONTRIBUTION SYSTEMS
Superintendencia de AFJP, Julio de 2007
INTEGRATED vs. SEPARATE CONTRIBUTION SYSTEMS
Government agency: contribution integration facilitates collection management, individual checks, cross checks and the supervision process in general.
Employers: contribution integration makes management easier and reduces administrative costs for the company. However, it can lead to avoidance or evasion since it increases the cost of “the decision to pay.” To the degree that the payment of taxes and social security contributions is a requirement for accessing other services, e.g. bank loans – the aforementioned risk will be reduced.
Self-employed workers: the different perceptions of the benefits and costs of contributions to health, old age, disability, death and housing systems for different types of workers – e.g. women, men, single or married people with or without children – could induce them to pay a higher rate in some cases and a lesser rate (or nil) in others; nonetheless, as mandatory systems usually have fixed percentage contributions, the design of integrated contributions within a certain range – e.g. social security and health, would be preferable for the system as a whole.
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6. DESIGN OF THE COLLECTION SYSTEM: FACTORS TO CONSIDER
Superintendencia de AFJP, Julio de 2007
DESIGN OF THE COLLECTION SYSTEM: FACTORS TO CONSIDER
PAYGO and individually funded systems
Periodical mandatory (through the employer) or voluntary (directly by the member) social security contributions
Integrated contributions (social security, work hazards, health, unemployment insurance, taxes) vs. Individual contributions: economies of scope
Economies of scale
Standards and technological portability
Better safety practices
Fees, costs and incentives
Entry barriers
Mandatory contributions control and checking mechanisms
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7. CENTRALIZED SYSTEMS Advantages: Economies of scale Economies of scope
Superintendencia de AFJP, Julio de 2007
CENTRALIZED SYSTEMS
Advantages:
Economies of scale
Economies of scope
Supervision: the ability to oversee and cross-check with other taxes
Government incentives
Risks:
“Transfer cost”
Relative importance of social security within national taxes (“prior vices”)
Standards and technological portability (obsolescence); better safety practices.
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8. DECENTRALIZED SYSTEMS
Superintendencia de AFJP, Julio de 2007
DECENTRALIZED SYSTEMS
Advantages:
Greater competition (no economies of scale)
Greater transfer speed
Risks:
Entry barriers
Standards and technological portability (obsolescence); better safety practices.
Coordination with the government supervision agency
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9. COLLECTION SYSTEMS IN LATIN AMERICA
Superintendencia de AFJP, Julio de 2007
COLLECTION SYSTEMS IN LATIN AMERICA
Members
% of the
collection
% operational
costs
Billions of US$
millions
Argentina
AFIP, Federal Public Taxes
Administration
0.70
4.3
30.1
10.8
Bolivia
AFP directly
2.9
1.1
Chile
AFP directly or through
PREVIRED
111.0
8.0
Colombia
Information operators - PILA
System
24.6
7.8
Costa Rica
Costa Rican Social Security Fund
SICERE
1.17
16.0
1.4
1.6
El Salvador
AFP directly or through agreements
with banks
3.9
Mexico
IMSS, Mexican Social Security
Institute
75.9
38.5
Peru
20.1
4.0
Dominican Republic
TSS, Social Security Treasury
EPBC
0.9
Uruguay
BPS, Banco de Previsión Social
3.4
0.8
Source: Bertin-Calvo (Comp.): Individual funding in the Latin American Pension Systems ww.aiosfp.org
AIOS: Statistical Bulletin; December
Pension funds
Countries
Centralized
Decentralized
Collection costs
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10. Superintendencia de AFJP, Julio de 2007
CONCLUSIONS
Decentralization is a more flexible system with greater competition and is adaptable to markets with multiple service providers.
Centralization enables taking advantage of the benefits derived from economies of scale and scope. The alternatives are: public or private management.
In the first case, the collection-checking process is integrated. The challenges are: technological innovation (risk of obsolescence), ranking of the social security collection process within overall tax collection and for the fee to reflect the service costs without becoming a “transfer price.”
Direct private management, or through the concession of the public service, has similar challenges in terms of technological innovation (risk of obsolescence). For achieving efficiency, it should be integrated to the supervision process and the fee should reflect the costs and not become an entry barrier to new actors.
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11. Thank you for your attention
Superintendencia de AFJP, Julio de 2007
Thank you for your attention
(54 11)
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