During 2000 Law 340, the Pension Saving System Act, and four other bylaws for its application came into force. During 2001 Law 388, the Act of the Superintendency of Pensions, was promulgated along with two additional bylaws.
These laws have amended the Nicaraguan pensions regime, replacing the old system of distribution with a system of individual capitalization, following the model used in Chile and taking into consideration the Mexican and Salvadorian adaptations.
The Superintendency of Pensions
The Superintendency of Pensions shall be in charge of the administrative institutions for pension funds. It shall be governed by the Pensions Saving System Act and the Act of the Superintendency of Pensions.
The Superintendency of Banks
The Superintendency of Banks shall supervise the insurance companies and stock markets.
The Administrative Institution of Pension Funds
Article 3 of the act states that the pension system shall be administrated by the Administrative Institution of Pension Funds (AFP).
The AFP is a provisional group of entities whose sole purpose is to administer pension funds, carry out the necessary procedures, and grant the repayments and benefits established by the act.
In order to be part of the AFP the superintendency's authorization is required, along with the other documents required by the act.
The commercial name of an AFP entity must contain either the phrase 'administrator of pension funds' or the initials 'AFP'. The capital stock must be equivalent to at least $2 million in cordobas, and must be subscribed and completely paid in cash by the time that the company's constitution deed is granted.
AFP companies shall be administered by a board of directors comprising five or more proprietary directors and their corresponding substitutes. A company must provide affiliates with a pensions savings book, in which the number of contributions paid to the account and its value shall be registered whenever the affiliate so requests.
The AFP has the right to determine the investment policies of the administered funds, within the limits established by the legislation and its bylaws, and observing the minimum elements determined by the superintendency. Such an investment policy must be available to the public. In relation to these investment policies, external auditors shall decide if these provisions have been met by examining the company's financial statements.
Generally, securities transactions carried out with the resources of a pension fund must be made on formal markets, whether primary or secondary. However, the act allows to acquire directly from some institutions, values issued by the Ministry of Treasury and Public Credit or by the Central Bank of Nicaragua.
The Risk Commission shall determine the maximum limits for pension fund investments according to the type of instrument and the issuer.
The capital market
Pension funds shall be invested in various capital market instruments. Article 3 of the investment bylaw establishes that all such instruments must be registered on a stock market in Nicaragua.
The capital markets are mainly supervised by the Superintendency of Banks and other Financial Institutions. However, the Superintendency of Pensions shall have the right to supervise how pension funds may be invested.
For further information on this topic please contact Carlos Taboada Rodriguez at Taboada & Asociados by telephone (+505 2 683 839) or by fax (+505 2 668 088) or by email ([email protected]). The Taboada & Asociados website can be accessed at www.taboadayasociados.com.