The troubled state of pension systems in Latin America
By Augusto de la Torre and Heinz P. Rudolph
A quarter of a century since Chilean-style pension reforms swept Latin America, the state of the region’s pension systems is worrisome. Old and new problems are increasingly rearing their ugly heads, some setting off serious alarms, all posing thorny political and technical challenges. Pension issues have therefore once again taken center stage in the policy debate. This paper provides a bird’s eye view of the quilt-like landscape of contributory pensions systems left in the wake of the 1990s reforms and of the rise of non-contributory “social” pensions in the 2000s. It then documents and analyzes the key problems ailing different pension arrangements, including the threat to fiscal sustainability posed by over-extended and typically inequitable pay-as-you-go defined-benefit (PAYGDB) systems, the root causes of the underperformance of fully-funded-defined-contribution (FF-DC) systems, and the issues involved in the mushrooming of non-contributory social pensions. The paper concludes by outlining policy prescriptions.