In Peru and Chile, the measures were approved despite opposition governments and received popular support because millions of people have lost their jobs.
Colombia is the most recent Latin American country to evaluate a plan to allow workers to draw on their private pension savings, a measure that aims to smooth the decline in consumer spending, but which carries the risk of worsening one of the collapses of the sharpest stock markets in the world.
A bill sent to Congress this week would allow some Colombians to draw on up to 10% of their retirement savings. Chile approved a similar measure this month, and Peru did so in April. The Brazilian government is also evaluating allowing workers to make partial withdrawals pension funds that do not yet offer that option, according to a report by the country's pension regulator.
In Peru and Chile, the measures were approved despite opposition governments and received popular support because millions of people have lost their jobs amid the economic crisis. The Colombian government is also opposed to the idea.
Lawmakers across the region are examining whether pension savings can help workers survive the worst economic crisis in decades, as liquidity-strapped governments cannot provide an adequate safety net. However, the risk is that the measures will force fund managers to ditch assets in markets demand is weak and liquidity is low.
"This is a relief of cash flow, but a dangerous one," said Catalina Tobón, director of investment strategy for the Skandia pension fund in Bogotá. "Pensions must be sacred and people are losing decades of compound interest."
The proposals also do a disservice to the large part of the population that works in the informal sector.
The worst performances
At the end of 2019, the Latin American members of the International Federation of Pension Fund Administrators had assets worth US $ 637,000 million. The funds in Chile and Mexico each managed more than US $ 200,000 million, while those in Colombia had US $ 86,000 million and those in Peru US $ 52,000 million.
The Colombian stock market has fallen 38% this year in dollar terms, the largest contraction in the world, while Brazil and Mexico are also among the worst performers.
Credicorp Capital noted in a report that it estimates Peruvians have withdrawn about $ 5.7 billion in pension savings, or about 13% of assets under management private pension fund entities, since the measure was approved. Fund managers turned to their most liquid holdings, such as bank deposits, Credicorp said, and so far have avoided causing a liquidation of Peruvian stocks.
In Mexico, President Andrés Manuel López Obrador last week presented a pension reform plan in which companies would have to contribute more to employee retirement funds and reduce the weeks a person needs to work before achieving a pension.
If pension funds are forced to ditch assets amid large withdrawals, they are likely to sell whatever is easiest to sell first, said Daniel Guardiola, equity analyst at BTG Pactual.
"This decline is likely to force pension fund managers to sell their most liquid assets: sovereign bonds and international assets," Guardiola said, in response to written questions.