Latin American pension reform (update)

Introducing individual accounts (funded old-age savings) in Latin American pension systems did not accomplish one of its major goals—closing the pension coverage gap. Even though guaranteed minimum benefits were usually a part of the reform, a large proportion of contributors do not or will not have enough contributions to qualify for the minimum pension based on their contribution patterns. To address this problem, many of these countries introduced noncontributory pensions and subsidized benefits to provide protection to those workers. To date, the success of these programs is mixed. For example, because Bolivia’s program is universal, coverage is very high. Also, Chile has reached its goal of providing these benefits to the poorest 60 percent of the population. Thus, for most of the countries under study, one of the greatest challenges for the future will remain how to extend coverage successfully to a larger portion of the retirement-age population. [Emphasis added.]

US Social Security Administration, “Social Pensions and Subsidized Benefits in Latin America“, International Update, September 2013.

This short article makes the important point that the move to pre-funded, private accounts did nothing to expand pension coverage in Latin America, but I question the assertion that Chile has reached its goal of providing minimum pensions to the poorest 60 percent of the population. It is true that a goal of Chile’s 2008 reform is to provide a minimum pension to each elderly member of households in the bottom 60% of the income distribution, but I have seen no evidence that this goal has been reached. Chile’s previous “social assistance pension” targeted the poorest 15% of households, but more than 40% of social pensions were captured by those living in higher-income households, leaving vast numbers of elderly poor without benefits. There is no reason to expect targeting of the poorest 60% of households to be more accurate.

Source: Larry Willmore and Stephen Kidd, Tackling Poverty in Old Age: A Universal Pension for Sri Lanka (HelpAge International, November 2008), p. 12. Available at SSRN: http://ssrn.com/abstract=1312344

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