The pension system in Argentina - six years after the reform

In the context of a serious financial, and legal crisis, Argentina reformed its pension system in 1994, when a multi-pillar model with a funded scheme was introduced, and first pillar parameters, as minimum age and vesting requirements were tightened. The new system has a significant first pillar (which offers a flat benefit, currently valued at 28 percent of average wage to all retirees), and a second pillar, that should provide a similar amount, once the transition is completed. The new system has developed rapidly, and most formal workers have joined the new funded scheme. However, there are problems that must be resolved. In the first pillar, the reform balanced long term finances, but it will also reduce coverage very rapidly, as a consequence of the combined effect of low formality in the labor market, and stricter contribution requirements. The most serious problems in the funded pillar are the administration costs, and the need to improve regulation, and supervision of insurance companies, that provide disability, and survivors coverage, and annuities to beneficiaries. While these problems are important, their consequences can be avoided if adequate policies are developed by the Government. In this sense, the experience of the pension reform in Argentina is an excellent lesson for other countries that are considering a reform in their own systems.