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Transitional fiscal costs and demographic factors in shifting from unfunded to funded pensions in Latin America

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  • Bravo, Jorge Horacio
  • Uthoff, Andras

Abstract

After the 1981 Chilean pension system reform, which shifted from a government run pay-as-you-go system to a private, fully funded one, many countries in Latin America have implemented or are considering reforms with an important funded component. We develop a simple model to assess the magnitude of the implicit government debt that needs to be made explicit by this policy, as well as the transitional fiscal costs that such a reform implies. We show that the liabilities and the associated fiscal costs are affected by the population age structure, old-age mortality, labour-market and pension system variables. By use of data from Latin American countries, we find that in several countries, especially those with more aged populations and high coverage systems, the pension debt is very high, and that a switch from unfunded to fully funded systems implies substantial fiscal costs, that may even turn out to be economically and politically unviable in some cases. The effect of some partial funding options are discussed in selected national contexts.

Suggested Citation

  • Bravo, Jorge Horacio & Uthoff, Andras, 1999. "Transitional fiscal costs and demographic factors in shifting from unfunded to funded pensions in Latin America," Financiamiento para el Desarrollo 5295, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  • Handle: RePEc:ecr:col035:5295
    Note: Includes bibliography
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    References listed on IDEAS

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    1. Klaus Schmidt-Hebbel, 1997. "Pension Reform, Informal Markets and Long-Term Income and Welfare," Working Papers Central Bank of Chile 04, Central Bank of Chile.
    2. De Mesa, Alberto Arenas & Bertranou, Fabio, 1997. "Learning from social security reforms: Two different cases, Chile and Argentina," World Development, Elsevier, vol. 25(3), pages 329-348, March.
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    Cited by:

    1. Macedo, Roberto B.M., 2003. "Macroeconomic volatility and social vulnerability in Brazil: the Cardoso government (1995-2002) and perspectives," Financiamiento para el Desarrollo 5113, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Bravo, Jorge Horacio, 2000. "Population ageing and pension systems in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    3. Fox, M. Louise & Palmer, Edward, 2001. "Pension reform in Europe in the 90's and lessons for Latin America," Financiamiento para el Desarrollo 5092, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Willmore, Larry, 2006. "Non-contributory pensions: Bolivia and Antigua in an international context," Financiamiento para el Desarrollo 5145, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Cruces, Guillermo & Galiani, Sebastian, 2007. "Fertility and female labor supply in Latin America: New causal evidence," Labour Economics, Elsevier, vol. 14(3), pages 565-573, June.
    6. Guillermo Cruces & Quentin Wodon, 2007. "Risk-adjusted poverty in Argentina: measurement and determinants," Journal of Development Studies, Taylor & Francis Journals, vol. 43(7), pages 1189-1214.
    7. Mar Devesa Carpio & José E. Devesa Carpio, 2009. "El coste y el desequilibrio financiero-actuarial de los sistemas de reparto. El caso del sistema Español," Working Papers. Serie EC 2009-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. Rydell, Ingrid, 2005. "Equity, Justice, Interdependence: Intergenerational Transfers and the Ageing Population," Arbetsrapport 2005:5, Institute for Futures Studies.
    9. Calcagno, Alfredo Fernando & Manuelito, Sandra & Titelman Kardonsky, Daniel, 2003. "From hard-peg to hard landing?: recent experiences of Argentina and Ecuador," Financiamiento para el Desarrollo 5106, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    10. Paddison, Oliver, 2006. "Social security in the english-speaking Caribbean," Financiamiento para el Desarrollo 5152, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Uthoff, Andras, 2006. "Gaps in the welfare State and reforms to pension systems in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    12. Bravo, Jorge H., 2001. "The Chilean Pension System: A Review of Some Remaining Difficulties After 20 Years of Reform," Discussion Paper 7, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    13. -, 2004. "Régime de croissance, vulnérabilité financière et protection sociale en Amérique latine. Les conditions "macro" de l'efficacité de la lutte contre la pauvreté," Financiamiento para el Desarrollo 5123, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    14. Palmer, Edward, 2006. "Public policy for pensions, health and sickness insurance: potential lessons from Sweden for Latin America," Financiamiento para el Desarrollo 5156, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    15. González R., Marino J., 2001. "Reformas del sistema de salud en Venezuela (1987-1999): balance y perspectivas," Financiamiento para el Desarrollo 5089, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    16. Titelman Kardonsky, Daniel & Uthoff, Andras, 2003. "The role of insurance in social protection," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

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