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Pension reform in Latin America : quick fixes or sustainable reform?

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  • Aiyer, Sri-Ram

Abstract

Because of better health and higher standards of living, people are living longer. By 2030, more than 16 percent of the world's population will be older than 60, compared with 9 percent today. As a result, pension systems will need reform. Most current systems have substantial unfunded liabilities that will impose significant financial burdens onfuture generations without providing adequate protection for older individuals and lower-income workers. Pension reform is inevitable because of demographic imperatives and because many pension systems are financially unsustainable. Unfunded public pension systems pose political risk if promises to future retirees cannot be met. Pension reform is both technically and politically complex but more and more countries are beginning to address the problem. The question is whether to adopt quick fixes or sustainable changes that will benefit the macroeconomy and protect elderly and lower-income citizens. Quick fixes--typical in many economies--generally involve changes in eligibility (such as retirement age), changes in the rate of contribution or the population of workers on which contributions are calculated, or changes in the structure of benefits. Countries in Latin America have been ahead of other regions in undertaking major reform from pay-as-you-go defined-benefit pension plans to fully funded, defined-contribution pension plans. Because of the successful Chilean pension model, a notable number of Latin American countries have undertaken deep pension reform. The author highlights reform efforts in a sample of countries: Argentina, Brazil, Chile, Mexico, and Peru. Vigilance is still needed, says the author. Effective oversight is essential, and so is complementary reform in the banking, insurance, and securities markets. In capital markets, for example, regulation must be strengthened and the requirement that pension fund investments be made only in government-related securities must be eliminated. New types of insurance must be made available and there must be increased competition among insurance providers. More work must be done but the region's pension systems have started on the right course.

Suggested Citation

  • Aiyer, Sri-Ram, 1997. "Pension reform in Latin America : quick fixes or sustainable reform?," Policy Research Working Paper Series 1865, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1865
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    References listed on IDEAS

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    1. Shah, Hemant, 1997. "Toward better regulation of private pension funds," Policy Research Working Paper Series 1791, The World Bank.
    2. Schwarz, Anita M. & Demirguc-Kunt, Asli, 1999. "Taking stock of pension reforms around the world," Social Protection Discussion Papers and Notes 20533, The World Bank.
    3. Vittas, Dimitri, 1997. "The Argentine pension reform and its relevance for Eastern Europe," Policy Research Working Paper Series 1819, The World Bank.
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    Cited by:

    1. Klaus-Jürgen Gern, 2002. "Recent Developments in Old Age Pension Systems: An International Overview," NBER Chapters, in: Social Security Pension Reform in Europe, pages 439-478, National Bureau of Economic Research, Inc.
    2. World Bank, 2002. "Reducing Vulnerability and Increasing Opportunity : Social Protection in the Middle East and North Africa," World Bank Publications - Books, The World Bank Group, number 14255.
    3. Eisen, Roland, 2000. "(Partial) privatization social security: The Chilean model - a lesson to follow?," CFS Working Paper Series 2000/13, Center for Financial Studies (CFS).
    4. Rojas, Juan A., 2002. "Privatizing social security: the role of imperfect substitution between less and more experienced workers," UC3M Working papers. Economics we022004, Universidad Carlos III de Madrid. Departamento de Economía.
    5. repec:pid:wpaper:2010:1 is not listed on IDEAS
    6. Juan A. Rojas, 2009. "Social Security reform with imperfect substitution between less and more experienced workers," Working Papers 0832, Banco de España.
    7. Amjad, Rashid & Din, Musleh ud, 2010. "Economic and social impact of global financial crisis: implications for macroeconomic and development policies in South Asia," MPRA Paper 38150, University Library of Munich, Germany.

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