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How much do Latin American pension programs promise to pay back?

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  • Forteza, Alvaro
  • Ourens, Guzman

Abstract

The authors present a new database of social security indicators for eleven Latin American countries designed to assess pension schemes in terms of the payments they promise in return to contributions. Based on this data, authors analyze inequality, insurance and incentives to work, using the replacement rates and the internal rates of return implicit in the flows of contributions and pensions. Results indicate that most programs analyzed are progressive in the sense that, other things equal, they yield higher returns to low than to high income workers. Poor workers, notwithstanding, often have flat age-earnings profiles and lower life expectancy, both of which reduce the rates of return received from social security. The Argentinean and (the pre-2008) Uruguayan programs severely punish short contribution careers, providing strong incentives for workers in the programs to continue contributing until they reach minimums that vary between 30 and 35 years of contributions. The counterpart is that these programs do not hedge workers against the risk of having short working careers; quite the opposite, they raise the uncertainty workers face. The very low rates of return that the Argentinean and Uruguayan main pension programs pay to workers with short working careers are likely to impact strongly on low income workers, as the probability they experience interruptions is higher. The Brazilian, Chilean and Mexican programs show a better balance between insurance against the risk of short working careers and incentives to work. The defined benefit programs of Argentina, Ecuador and Uruguay strongly discourage early retirement; the Chilean and Mexican programs are more neutral. Argentina, Chile and Uruguay passed reforms to their main pension programs in 2008. Unlike the Argentinean reform, the Chilean and Uruguayan 2008 reforms strengthened the social protection that programs provide, shifting the balance towards more insurance and less incentives to work.

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Bibliographic Info

Paper provided by The World Bank in its series Social Protection Discussion Papers with number 52447.

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Date of creation: 01 Dec 2009
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Handle: RePEc:wbk:hdnspu:52447

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Keywords: Pensions&Retirement Systems; Emerging Markets; Debt Markets; Gender and Law; Labor Markets;

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Cited by:
  1. Ra, Young-Sun & Shim, Kyung Woo, 2009. "The Korean case study : past experience and new trends in training policies," Social Protection Discussion Papers 53696, The World Bank.
  2. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers 52445, The World Bank.
  3. Lord, Janet & Posarac, Aleksandra & Nicoli, Marco & Peffley, Karen & Mcclain-Nhlapo, Charlotte & Keogh, Mary, 2010. "Disability and international cooperation and development : a review of policies and practices," Social Protection Discussion Papers 56092, The World Bank.
  4. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection Discussion Papers 52919, The World Bank.
  5. Holzmann, Robert, 2010. "Bringing Financial Literacy and Education to Low and Middle Income Countries: The Need to Review, Adjust, and Extend Current Wisdom," IZA Discussion Papers 5114, Institute for the Study of Labor (IZA).

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