How much do Latin American pension programs promise to pay back?
AbstractThe 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 InfoPaper provided by The World Bank in its series Social Protection Discussion Papers with number 52447.
Date of creation: 01 Dec 2009
Date of revision:
Pensions&Retirement Systems; Emerging Markets; Debt Markets; Gender and Law; Labor Markets;
Other versions of this item:
- Alvaro Forteza & Guzman Ourens, 2009. "How much do Latin American pension programs promise to pay back?," Documentos de Trabajo (working papers), Department of Economics - dECON 3109, Department of Economics - dECON.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
This paper has been announced in the following NEP Reports:
- NEP-AGE-2010-10-16 (Economics of Ageing)
- NEP-ALL-2010-10-16 (All new papers)
- NEP-LAB-2010-10-16 (Labour Economics)
- NEP-LAM-2010-10-16 (Central & South America)
- NEP-LTV-2010-10-16 (Unemployment, Inequality & Poverty)
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