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The New Wave of Pension Reforms in Latin America

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Economic Challenges of Pension Systems

Abstract

In 1980–2005, 11 Latin American countries (out of a total of 20) implemented structural reforms (“privatization”) in their pension systems, totally or partially shifting them from defined benefit, PAYG, and public administration toward defined contribution, fully funded financing, and private management. Initial design flaws and later modifications have required re-reforms ranging from full reversion to PAYG (Argentina and Bolivia) to improve the private system infusing social solidarity (Chile). Several countries that privatized their pensions have introduced parametric reforms (Colombia, Costa Rica, Mexico, and Uruguay), whereas others are discussing re-reforms (Dominican Republic, El Salvador, Panama, and Peru). Such reforms include adopting or expanding non-contributory pillars, increasing coverage, improving competition, and strengthening financial equilibrium, albeit with substantial differences between the countries. In this chapter, we review the implemented re-reforms, as well as those under discussion, and extract useful lesson for the region and the world.

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Notes

  1. 1.

    A structural pension reform totally or partially closes a public pension system, whereas a parametric reform maintains the system trying to improve it.

  2. 2.

    Administradoras de Fondos de Pensiones (AFJP) in Argentina, Operadoras de Pensiones Complementarias (OPC) in Costa Rica, and Administradoras de Fondos para el Retiro (AFORE) in Mexico

  3. 3.

    Based on CAPSP (2015), Mesa-Lago and Bertranou (2016)

  4. 4.

    Starting on January 1, 2017, PBS pensions were raised 10%.

  5. 5.

    Based on Mesa-Lago (2009), Hohnerlein (2012), and Bertranou et al. (2017)

  6. 6.

    Public system revenues were drastically reduced because almost 80% of the insured and their contributions were shifted to the private pillar.

  7. 7.

    Conversely, an extensive and serious debate took place during the 2001–2002 economic crisis that led to a series of well-thought recommendations.

  8. 8.

    “Pension moratoria” allowed workers and their beneficiaries to become eligible to pensions despite lacking the minimum number of contribution years.

  9. 9.

    Based on Mesa-Lago and Ossio (2012), Mesa-Lago (2017)

  10. 10.

    Initially, the state assigned insured persons to the two AFP based on their place of residence and impeded changes between the two for 7 years; later such changes were allowed but only 0.3% of affiliates actually shifted.

  11. 11.

    Comparisons among private systems are based on AIOS (2016).

  12. 12.

    The military pension is 56% higher than the average contributory pension and is granted based on years of service.

  13. 13.

    Based on Valero (2013), SIPEN (2016)

  14. 14.

    Sistema Único de Beneficiarios, a database on the poorest families

  15. 15.

    Own calculation based on ONE (2010), SIUBEN (2012), and CNSS (2013)

  16. 16.

    SIPEN (2017), and own calculation

  17. 17.

    The short-term goal is the affiliation to health services; contributions to pensions are delayed for 4 years.

  18. 18.

    Based on Martínez et al. (2013), and Mesa-Lago (2014)

  19. 19.

    Retirement is at 50 years (versus 55/60 women/men in the general system) and the replacement rate could be as high as 100% of the last salary.

  20. 20.

    Based on AIOS (2013, 2016), OECD (2014), Mesa-Lago (2008, 2016c), and CONATO (2016)

  21. 21.

    The solution required an increase of the very low contributions and retirement ages.

  22. 22.

    The first US$500 of wages is assigned to the public pillar and US$500 and over to the private one.

  23. 23.

    Military men and firemen can retire with 25–30 years of service and 100% of the last salary.

  24. 24.

    No information is available on commissions. In SIACAP, only 27% of affiliates contribute.

  25. 25.

    It’s unknown what insured are in the closed public system and in the public pillar.

  26. 26.

    Based on Defensoría del Pueblo (2014), Rojas (2014), Mesa-Lago (2016a, 2016b), and Cruz-Saco et al. (2017)

  27. 27.

    A 2012 law mandated the gradual coverage of self-employed but it was later repealed.

  28. 28.

    The non-contributory pension is granted to two-thirds of the extremely poor that don’t get another pension and are submitted to a means test.

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Author information

Authors and Affiliations

  1. Department of Economics, University of Pittsburgh, Pittsburgh, PA, USA

    Carmelo Mesa-Lago

  2. Departamento de Econometría, Estadística y Economía Española, University of Barcelona, Barcelona, Spain

    Diego Valero

Authors
  1. Carmelo Mesa-Lago
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  2. Diego Valero
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Editor information

Editors and Affiliations

  1. Department of Business Organization, Universitat Politècnica de València, Valencia, Spain

    Marta Peris-Ortiz

  2. Department of Financial Economics and Accounting, University of Extremadura, Cáceres, Spain

    José Álvarez-García

  3. Financial Economics and Accounting, University of Extremadura, Cáceres, Spain

    Inmaculada Domínguez-Fabián

  4. Institute of Statistics, Biostatistics and Actuarial Science (ISBA), Université Catholique de Louvain, Louvain-la-Neuve, Belgium

    Pierre Devolder

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Mesa-Lago, C., Valero, D. (2020). The New Wave of Pension Reforms in Latin America. In: Peris-Ortiz, M., Álvarez-García, J., Domínguez-Fabián, I., Devolder, P. (eds) Economic Challenges of Pension Systems. Springer, Cham. https://doi.org/10.1007/978-3-030-37912-4_12

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