Working Papers

Toward a responsible ageing: The reforms of Latin American pension systems

CODE: WP-433
AUTHOR(s): Pagés-Serra, Carmen
PUBLISHED: October 2000
RELATED TOPICS: Macroeconomics


In the 1990s, seven Latin American countries reformed their pension systems to introduce individually funded systems based totally or partially on the Chilean model. The driving force behind the reforms was the severe financial shortfall suffered by many of the pay as you go systems in the region; but administrative problems, low coverage and the regressive effects also created very important weaknesses in the original systems. The pension reforms described in this article have corrected these weaknesses, at least in part. The improvement in the balance between current income and future benefits has reduced the long-term actuarial deficits, along with the regressive effects and the incentives against contributing to the old systems. However, not all the problems have been solved; in particular, in addition to the financing of the cash deficits generated by the transition to the new system, there are important challenges associated with the regulation of compulsory individually-funded systems. First there is the need to cut the high administrative costs of operating the regions funded systems. Second, there is the need to find a balance between limiting the risks that the system can incur and adequate profitability for the individual funds. Finally, the design of minimum pensions needs to be improved in order to provide an adequate income floor without undermining the incentives to contribute. Keywords: pension reforms, social security, funded systems, pension funds, Latin America.

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