Refunding Fees: What Does Equity Cost?

Abstract

This study analyzes the impact of a pension system reform requiring the AFPs to refund the fees charged in periods when the funds they manage post negative returns. The results show that this measure would induce administrators to implement more conservative investment strategies, and that this would reduce the expected value of future pensions. The analysis shows that the longer the period used to calculate the benchmark return for the refund, the smaller the impact of the measure. Even considering a five-year period, however, Funds A and B would be affected.