Early pension withdrawals and their uneven long‐term effects in Peru

Abstract This article examines the potential impact of early pension withdrawals from Peru's individual retirement account system. Originally introduced as a policy response to the COVID‐19 pandemic, a number of large withdrawals were allowed during and after the pandemic. We find that these policies can reduce expected pension wealth by about 40 per cent, but there are important heterogeneous effects. There is a socio‐economic gradient in the distribution of pension fund losses, with individuals at the lower end of the income or savings distribution experiencing larger losses. Losses are also higher for men and older people, who have less time to rebuild their pension pots.