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The effects of a multi-pillar pension reform: The case of Peru

Author

Listed:
  • Javier Olivera

    (University of Luxembourg)

Abstract

In this paper we study the consequences of a hypothetical multi-pillar pension system in Peru. We use unique administrative records of workers to estimate distributions of future pensions for the actual and multi-pillar system and assess the effects on pension inequality, pension liability and overall welfare for the insured population. Our results show that the large pension inequality and liability of the actual pension system can be substantially reduced with welfare preserving policies. As we consider different types of social welfare functions, our simulations illustrates, that when one considers welfare, it is important to define the implied value judgments, which are not universally agreed upon. Thus, the goal of this study is not to advice for a particular scenario of reform, but highlight the trade-offs that have to be made explicit in order to take the best possible option, which can be useful for policy-makers who intend to carry out a next generation of pension reforms in Latin America in the near future.

Suggested Citation

  • Javier Olivera, 2014. "The effects of a multi-pillar pension reform: The case of Peru," Working Papers 21, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:2014-021
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    References listed on IDEAS

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    1. Abigail Barr & Truman G. Packard, 2005. "Seeking solutions to Vulnerability in Old Age: Preferences, constraints, and alternatives for coverage under Peru’s pension system," CSAE Working Paper Series 2005-05, Centre for the Study of African Economies, University of Oxford.
    2. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    3. Nicholas Barr & Peter Diamond, 2009. "Reforming pensions: Principles, analytical errors and policy directions," International Social Security Review, John Wiley & Sons, vol. 62(2), pages 5-29, April.
    4. Alvaro Forteza, 2011. "Assessing Redistribution within Social Insurance Systems.The cases of Argentina, Brazil, Chile, Mexico and Uruguay," Documentos de Trabajo (working papers) 1311, Department of Economics - dECON.
    5. Alberto Arenas de Mesa & Carmelo Mesa-Lago, 2006. "The Structural Pension Reform in Chile: Effects, Comparisons with Other Latin American Reforms, and Lessons," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(1), pages 149-167, Spring.
    6. Clement Joubert, 2011. "Pension design with a large informal labor market: evidence from Chile," 2011 Meeting Papers 1136, Society for Economic Dynamics.
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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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