PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN
PAYG AND INDIVIDUAL CAPITALIZATION SYSTEMS COEXIST?
ERNESTO REZK
Instituto de Economía y Finanzas Facultad de Ciencias Económicas
Universidad Nacional de Córdoba, Argentina
SUMMER SCHOOL IN DEVELOPMENT ECONOMICS
SALERNO UNIVERSITY, Ascea Marina, 27 June 2014 13
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
Pension fund systems with mandatory contributions
Taxable returns
Liquidity constraints
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
There are capital market imperfections
There are restrictions for borrowing
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
PENSION SYSTEM VARIANTS
Single System: affiliation is mandatory for all workers. Funds are either
channeled to the PAYG regime or administered by private firms (pension fund
administrators).
Integrated Mixed System: PAYG and individual capitalization regimes coexist.
Workers´s contributions are distributed between both regimes.
Mixed System in Competence: individual capitalization and PAYG compete for
affiliations and contributions are totally directed to the chosen regime.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
OPERATING PENSION SYSTEMS
COUNTRIES YEAR SINGLE SYSTEM
MIXED INTEGRATED
SYSTEM
MIXED IN COMPETITION
OTHERS
Argentina 1994 2008
X
X
Bolivia 1997 2010
X
X
Brasil 1991 X
Chile 1981 X
Colombia 1993 X
México 1997 X
Perú 1993 X
Uruguay 1995 X
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA
Period 1994-2008
Mixed in competence component (workers chose the regime) and Mixed
integrated component (labours mandatorily contributed to the chosen regime
and employers to the PAYG system). Voluntary contributions allowed in the
capitalization system.
Capitalization regime: individuals paid 7% of their wages: 4.58% to the fund,
1.42% to the insurance company and 1% to the Pension Fund Association.
Employers contributed 16% to finance the PAYG regime.
Retirement Age: 65 for male and 60 for female.
PAYG system: individuals paid 11% and employers 16%.
Benefits: pensions for the elderly, disability and death pensions.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA
Period 1994-2008
Pensions for the elderly (in both regimes) included:
A Universal Basic Benefit equal to 2.5 times an annually estimated social
security unit.
A Compensatory Benefit accounting for contributions paid to the PAYG regime
before the Law 24241.
An Additional Benefit for Permanence amounting to 0.85% per year of
contribution, beyond 1994. As of 2008, the whole Pension Schem was restated by finishing the Mixed
Integrated System and returning to the previous state- managed PAYG Regime.
There is a minimum legal pension (assumedly falling in line with the minimum
legal wage) whereas the value of pensions are updated twice a year using an
ad-hoc index for social security.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND
CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA: PAYG´S FINANCING SOURCES
Social Security Taxes; (58%)
Employers´ contribution on wages 16% (4.9% pib)
Employees´ contribution on wages 11% (3.4% pib)
Tax revenues: (42%)
Transfers from VAT yield 11% (1.0% pib)
Transfers from Income Tax yield1 20% (1.2% pib)
Transfers from taxes on petrol and gas 21% (0.25% pib)
Transfers from the simplified regime
for small taxpayers 70% (0.12% pib)
Internal taxes on diesel cars 100%
Revenue sharing regime (coparticipación) 15% (3.2% pib)
1. Plus $ 120.000.000 per year
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA: THE PAYG´S SUSTAINABILITY GUARANTEE FUND
(as of 2008)
AIMS
1. To lessen negative financial impacts upon PAYG that may stem from the
evolution of economic and social variables.
2. To contribute to preserve the value and profitability of PAYG´s resources.
3.To face eventual PAYG´s financing shortages that may endanger the
quantum of benefits.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA: THE PAYG´S SUSTAINABILITY GUARANTEE FUND
(as of 2008)
SOURCES
1. PAGY´s proven available annual resources (that is, net of liabilities
represented by the year´s quantum of pensions and benefits).
2. Financial resources transferred from the previous individual capitalization
system.
3. Returns on carried out investments.
4. Any other budgetary transfer from the central government.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA: THE PAYG´S SUSTAINABILITY GUARANTEE FUND
(as of 2008)
ACCUMULATION LIMITS AND USE
1. Fund´s accumulated resources can not exceed the amount of the annually
authorized spending in pensions and benefits.
2. The Fund may be used to finance pension expenditures whenever
contingencies come about preventing PAYG´S annual budgetary
obligations to be met.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ARGENTINA: THE PAYG´S SUSTAINABILITY GUARANTEE FUND
(as of 2008)
CRITERIA AND GUIDELINES TO INVEST
Based on criteria of safety, profitability and transparency, fund´s resources may
be invested in:
Public debt bonds
Domestic and foreign bonds, stocks and securities of acknowledged
Solvency
Fixed term deposits
Any other habitual investment in instruments of financial markets
Economic projects and infrastructure
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2011 2013
ARGENTINA: FORMER PRIVATE FUNDS PORTFOLIO (2007-2008) AND PAYG SUSTAINABILITY GUARANTEE FUND (2011-2013)
State Corporate Financial Foreign Other Assets Productive Projects+Infraestructure Liquid Assets
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
BOLIVIA, 1997-2010 The Mixed in Competence dual regime legislated in 1993 included the Average
Premium Regime (PAYG) operated by the Institute of Social Insurances (ISS)
and the Individual Capitalization scheme runned by Pension Fund
Administrators (AFP). Labour and self employed workers had the possibility of
changing regime.
Retirement Age: 62 for male and 57 for female.
Contributions to the RPM: 16%, (12% to finance pensions and 4% to defray the
system´s administrative costs.
Contributions to the capitalization system: 16% in the case of workers (11.5% to
the individual capitalization account,1.6% as a fee for pension
associations,1.4% to the insurance premium and 1.5% for the Minimum
Pension Guarantee Fund; self employed workers contribute 16%. Voluntary
contributions were permitted.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
BOLIVIA, SITUATION AS OF 2010
CONTRIBUTIVE REGIME (DEFINED CONTRIBUTION)
Pensions for the elderly financed with employees´ contributions and the Fund
for the Elderly (composed of transferred accumulated balances from the
previous individual capitalization regime)
Employees´ contributions: 12.71% (10% of wages or income, 0.50% for the
Solidarity Fund, 1,71% risk premium, 0.50% administration).
Required conditions: a minimum age of 58 for men and 55 for women and no
less than 120 contributions that can finance a pension higher than the solidarity
pension corresponding to the years of contribution.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
BOLIVIA, SITUATION AS OF 2010
SEMI CONTRIBUTIVE REGIME
Solidarity pensions for the elderly financed with employees´ contributions, the
Solidarity National Contribution (additional tax for higher income earners), 3%
employers´ contributions, a 0,50% solidary contribution by the insured and 20%
of risk premia.
Required conditions: a minimum age of 58 and no less than 120 contributions.
NON CONTRIBUTIVE REGIME
Dignity Pensions for individuals over 60 years (or more) with o without
contributions to the Contributive or Semi Contributive Regimes.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
BOLIVIA, SITUATION AS OF 2010
The Long Run Social Security Managing Body administers:
The PREVISIONAL SAVING FUND (workers´ individual saving accounts)
The FUND FOR THE ELDERLY (already retired´s accumulated balances)
The SOLIDARITY FUND (for the financing of Solidarity Pensions)
Investment Guidelines
Only financial institutions´ public bids
Focus on productive firms
Maximum 10% per bond issuer
Maximum funds´ revenue allocation in foreign investment: 50%
Maximum funds´ revenue allocation in unqualified small firms: 5%
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
BRASIL
The 1988 Constitution ruled that key parameters should be met, with regards to
Pensions, Health and Social Assistance, as for instance:
- Universal coverage (including self employed workers).
- Lowest benefits linked to the minimum legal wage.
- Indexation of pension benefits to the minimum legal wage.
- Pension benefits extended to the rural population.
- Selectivity and distributive features: individual needs should determine social
services and benefits.
- Equitable financing share.
- Diversity of financing bases in order that contributions may fall upon various
sectors and salary types.
- Administration bodies with participation of the government, employers, workers
and the retired.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
Social Security General Regime (RGPS)
PAYG (retirement age: 60 and 55 for male and female respectively)
Urban and rural systems
Social Security Specific Regimes (RPPS)
PAYG (retirement age: 60 and 55 for male and female respectively)
Including federal, state and municipal civil servants and the military
Supplementary Social Security (PS)
Capitalization (Including open and closed funds)
Social Welfare Regime
Non contributive pensions granted to the elderly under the poverty line
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
General Regime (RGPS)
Specific Regimes (RPPS)
Supplementary Regime
Beneficiaries Private labour Civil servants All individuals
Affiliation Mandatory
(Capitalization
admitted)
Mandatory
(Capitalization
admitted)
Voluntary
Regime type Defined benefits Defined benefits Capitalization
Contributions 22% employers
11% employees
22% employers
11% employees
Variable
Limits to benefits Yes, fixed amount Yes, variable
Indexation of ben. Past Inflation Expected
inflation
Regulated by MPS MPS MPS
Supervised by MPS MPS MPS, CGPC, CMN
Administered by INSS Resp. Gov. levels Private companies
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
CHILE A fully funded mandatory single capitalization system replaced in 1981 the
PAYG regime.
Individuals may have voluntary contributions.
Contributions: 12.37% (10% to the capitalization account, 1.04% to finance
disability and death premia, 1.33% to finance operation costs by pension fund
associations. Employers do not contribute.
Benefits: pensions for the elderly, disability and death pensions.
Perception of benefits: Immediate annuities, temporal rents combined with
differed annuities, programmed retirement.
Minimum pension guaranteed to individuals showing contribution during 20
years, minimum pension guaranteed to those whose accumulated funds fall
short of minimum required for the benefit.
Welfare type pensions to individuals under the poverty line.
Recognition Government bond por those coming from the PAYG system.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
CHILE
A thorough revision and modification of the regime took place in 2008
whereby an unfunded non contributory regime was introduced,
financed out of general revenues.
It also stated that individual capitalization beneficiaries would be
supplemented had they not reached an minimum level for their
retirement benefits.
For individual capitalization, there exist five categories depending on
the maximum and minimum levels each fund can invest in equities.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
CHILE
FUND MAXIMUM LIMIT MINIMUM LIMIT
A 80% 40%
B 60% 25%
C 40% 15%
D 20% 5%
E 0% 0%
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND
CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
CHILE
Variable
Rent
Government
Bonds
Investment
Funds and
National
Mutuals
Deposits and
financial
institution
Bonds
Type
E: More
conservative:
0%/5% 50%/80% 5% 80% 15%/35%
D:
Conservative
5%/20% 40%/70% 10% 70% 20%/45%
C:
Intermediate
15%/40% 35%/50% 20% 50% 30%/75%
B: Risky 25%/60% 30%/40% 30% 40% 40%/90%
A: More
riskier
40%/80% 30%/40% 40% 40% 45%/100%
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
CHILE
PORTFOLIO COMPOSITION OF THE PRIVATE INDIVIDUAL
CAPITALIZATON SYSTEM
(April 2012) Variable Fixed Foreign Foreign Others
Rent -Local Rent-Local Variable Rent Fixed Rent
16.1% 46.5% 25.6% 11.6% 0.2%
Source: Pension Superintendence , Chile.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
COLOMBIA
Mixed in competence dual regime legislated in 1993:
Average Premium Regime (PAYG) runned by COLPENSIONES and the
Individual Capitalization scheme (RAIS) runned by Pension Fund
Administrators (AFP). Labour and self employed workers have the possibility of
changing regime.
Retirement Requirements; 62 for male and 57 for female, contributions for a
minimum of 1275 weeks (24.5 years).
Contributions to the RPM: 16%, (12% to finance pensions and 4% to defray the
system´s administrative costs. Employers 75%, employees 25%.
Contributions to the capitalization system: 16.5% in the case of workers (12% to
the individual capitalization account,1.6% as a fee for pension
associations,1.4% to the insurance premium and 1.5% for the Minimum
Pension Guarantee Fund; self employed workers contribute 16.5%. Voluntary
contributions are permitted.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND
CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
COLOMBIA: EVOLUTION OF AFFILIATIONS
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
COLOMBIA: FUNDS AND INVESTMENT LIMITS Type Shares, Bonds Shares, Bonds Government Bonds
and Equities and Equities Bonds issued
Global (local + Local Abroad
external ones)
Conservative 0%/20% 15% 50% 40%
Moderate 20%/45% 35% 50% 60%
Riskier 45%/70% 45% 50% 70%
Source: Financial Superintendence , Colombia
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
COLOMBIA: MANDATORY FUND PORTFOLIOS (February 2013)
Moderate Conservative Riskier Scheduled
Retirement
Government
Bonds 47,5% 76,3% 32,0% 78,4%
Shares, Bonds
and Equities 34,8% 11,9% 37,3% 13,0%
Shares and Bonds
issued Abroad 14,3% 7,9% 28,3% 7,4%
Other investments
and operations 3,4% 4,0% 2,4% 1,2%
Source: Financial Superintendence , Colombia.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
MEXICO The Social Insurance Law replaced in 1997 the PAYG System by a mandatory
Individual Capitalization Regime. Voluntary contributions are allowed. Workers
may choose between two investment funds specialized in pension funds
(SIEFORE, Multifund System).
Contributions: 6.5% (5.3% goes to the individual capitalization accounts and
1.2% to fees perceived by the AFORES).
The State adds to social accounts a social quota (solidarity contribution) of
5.5% of salaries.
Retirement requirements: (2014-2015) 53 for men (contributing period 30 years)
and 51 women (contributing period 28 years), increasing gradually to 60 and 58,
respectively, in 2028.
There is also a pension for the elderly (above 60 years of age and a minimum of
10 years of contributions)
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
MEXICO Basic 1 SIEFORE
Assets invested in domestic and foreign fixed interest securities
International permitted bonds and securities from government and
qualified firms.
Basic 2 SIEFORE
Investment in equities is also permitted up to a maximum participation of 15%
of total.
Basic SB3, SB4 and SB4 created in 2008 raised equities participation to 20%,
25% and 40% respectively.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
PERU
Mixed in competence system started in June 1993.
Contributions to the PAYG System: 13% of salaries.
Retirement requirements: 65 years of age and 20 years of contribution,
minimum.
Contributions to the fully funded pension regime: 13.12% (10% goes to
individual capitalization accounts and the rest is distributed between the
insurance premium and pension fund associations´ fees. Individuals can have
voluntary additional contributions.
Pension perceptions´ possibilities: programmed retirement, family annuities,
temporal rents, temporal rents with differed annuities.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
PERU
As of 2005 there exists a multifund scheme for mandatory defined contribution
pension plans
Fund Type Equities Derivatives Short Term Fixed Interest
Securities Securities
Type 1 10% 10% 40% 100%
Type 2 45% 10% 30% 75%
Type 3 80% 20% 30% 70%
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
PERU: FUNDS AND INVESTMENT LIMITS
Type Variable Fixed Derivatives Fixed -Term Foreign
Rent Rent Deposits Instruments
1:Preservation 10% 100% 10% 40% 36%
2:Mixed1 45% 75% 10% 30% 36%
3:Growth 80% 70% 20% 30% 36% 1. It embodies 90% of affiliates.
PORTFOLIO COMPOSITION OF THE PRIVATE INDIVIDUAL CAPITALIZATON SYSTEM
(June 2012)
Local Investments Investments Abroad Temporary Operations 71.5% 27.7% 0.8
Source: Bank, Insurance and Pension Funds Superintendence, Perú
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
URUGUAY
The mixed integrated systems started operations in 1996.
Affiliation to the corresponding regime is determined in function of three salary
levels:
1. Retirement Regime for Intergenerational Solidarity (PAYG): for monthly
incomes equal or smaller than 5.000 uruguayan pesos.
A recent modification allowed workers earning up to 5000 uruguayan
pesos to allot 50% to the individual capitalization system.
2. Individual Capitalization System: monthly incomes above 5.000 till 15.000
uruguayan pesos.
3. Voluntary Individual Capitalization Regime: for all individuals, for amounts
exceeding compulsory upper limits.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
URUGUAY
Contributions to the PAYG system: 15% of earned salaries.
Contributions to the Individual Capitalization Regime: 15% (12.16% goes to
individual accounts, 1.854% corresponds to the administrator´s fee, 0.988%
covers the insurance premim).
Employers´ contribution (7.5%) totally goes to the PAYG regime.
Pension fund assets managed by Prevision Save Funds Administration
Bank of Social Prevision administers PAYGO
The Central Bank supervises the Individual Capitalization Scheme.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
URUGUAY
Pension benefits (PAYG) depend on the retirement age and years of
contribution:
Replacement Rate
30≤ n ≤ 35; 60≤ age ≤ 65 → 60%
35≤ n ≤ 40; 60≤ age ≤ 65 → 65%
≤ 40; 60≤ age ≤ 65 → 70%
≤ 40; 65≤ age ≤ 70 → 75%
≤ 40; 70≤ age → 80%
Minimun pension benefit: 85% of minimum legal wage
Maximum pension benefit: 7 times the minimum legal wage (15 times for
multiple affiliations)
Contributive pensions exist for individuals of 70, or above, and contributions for
at least 15 years). Relief pensions are granted to individuals over 70 without
income and contributions.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bolivia Chile Colombia Mexico Peru Uruguay Argentina(2011)
STRUCTURE OF PENSION FUND IN SOME LATIN AMERICAN COUNTRIES, 2010
State Corporate Financial Foreign Other Assets Productive Projects+Infraestructure Liquid Assets
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
EMPLOYED INDIVIDUALS, OVER 15, EFFECTIVELY CONTRIBUTING TO PAYG
OR INDIVIDUAL CAPITALIZATION REGIMES
Total Civil Private Sector Self Employed People over 65
Servants Workers Workers earning pensions
__________________________________________________________________
Argentina 68.7% 92.6% 77.2% 32.7% 90.7%
Bolivia 32.4% 74.6% 32.5% 2.1% 91.0%
Brasil 75.9% 93.6% 84.0% 24.3% 84.7%
Chile 81.7% 86.0% 86.5% 26.3% 84.2%
Colombia 57.2% 97.2% 77.2% 10.5% 44.0%
México 41.3% 69.2% 59.3% … 44.0%
Perú 50.4% 89.0% 59.5% 14.0% 25.4%
Uruguay 84.7% 99.9% 91.5% 39.4% 85.6%
Latin America 55.4% 90.4% 65.5% 12.4% 41.9% Source: ECLAC, Figures for 2011, México 2010.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
PENSION FUNDS GROSS CONTRIBUTORS, 2010
REGISTERED EFFECTIVELY
CONTRIBUTING
Argentina1 10,972,000 40.9%
Brazil … …
Bolivia 515,159 39,3%
Chile 4,487,843 51,7%
Colombia 4,080,088 45,3%
México 13,440,855 33,0%
Perú 1,923,466 42,4%
Uruguay 624,093 65,5%
1. Argentine figures correspond to 2008, as the regime was stopped that year.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
LATIN AMERICAN COUNTRIES: COVERAGE RATES PREVIOUS TO
TO FULLY FUNDED SCHEMES (BEFORE) AND IN 2002 (AFTER)
0
13
63
36
21
63
29
11
58
32
12
56
0
10
20
30
40
50
60
70
Argentina Bolivia Colombia México Perú Uruguay
Before
After
Source: Mesa –Lago (2005), Rofman and Lucchetti (2006), AIOS (2004)
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
INDIVIDUAL CAPITALIZATION FUNDS IN PERCENTAGE OF GDP
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
ADMINISTERED ASSETS BY DEFINED CONTRIBUTION PLANS IN SOME
LATIN AMERICAN COUNTRIES, 2012
Million dollars GDP Average Annual
Real Return3
Argentina1 28,400 9.5%
Brasil2 232,373 17.0%
Bolivia 7,875 29.2% 5.8%
Chile 159,190 58.5% 8.7%
Colombia 71,205 18.8% 9.5%
México 143,898 10,3% 6.9%
Perú 35,547 19.2% 8.1%
Uruguay 9,120 17.4% 9.0%
1. Argentine figures correspond to 2008, as the regime was ended that year.
2. Brazilian figures are for 2007 and they correspond to closed pension funds; open funds represented 3%-4%
of GDP
3. As of the year the regime was started.
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND
CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
REPLACEMENT RATES IN MAIN LATIN AMERICAN COUNTRIES
Argentina (2011) 55% (average) 75% 43% (retired with moratoria)
Brasil
Bolivia up to 100% of workers´ referent wages
Colombia (2012) 65% - 85% over average salaries of the last 10 years
Chile (OCDE, 2013) 52% M 42% W (AFP) 88% M 64% W
72% M 37% W
México (OCDE, 2013) 28.5%
Perú (2007) 50% but expected to gradually decrease
Uruguay 30≤ n ≤ 35; 60≤ age ≤ 65 → 60%
35≤ n ≤ 40; 60≤ age ≤ 65 → 65%
≤ 40; 60≤ age ≤ 65 → 70%
≤ 40; 65≤ age ≤ 70 → 75%
≤ 40; 70≤ age → 80%
PENSION REGIMES IN LATIN AMERICAN EMERGING COUNTRIES: DO AND
CAN PAYG AND INDIVIDUAL CAPITALIZACION SYSTEMS COEXIST?
SOCIAL SECURITY AGENDA FOR EMERGING LATIN AMERICAN
COUNTRIES
Non contributory pensions will be necessary, on grounds of distributional, solidarity and
equity goals, to work in connection to programmes aimed at checking poverty and
structural unemployment.
Coverage and tax compliance needs to be expanded, both in fully funded and unfunded
regimes, one obvious sector to aim at is in this regard that of self employed workers.
Individual capitalization may be improved and turned more attractive in various ways: as
for instance by reducing administrative and commercial costs for allowing rates of return
to increase and by offering a more varied portfolio composition both in term of financial
instruments and of levels of risk.
Competition between fully funded and unfunded regimes, by permitting affiliates to switch
from one to another, could at the end be favourable in terms of efficiency.
Financial sustainability of PAYG regimes may be deepened by resorting to ad-hoc reserve
funds, as for instance the Sustainability Guarantee Fund in Argentina.
1.