Pensions at a Glance

Pensions at a Glance

Latin America and the Caribbean You or your institution have access to this content

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OECD, IDB, The World Bank
01 Dec 2014
9789264224964 (PDF) ;9789264220546(print)

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This comprehensive examination of pension systems in Latin America and the Caribbean looks at recent trends in retirement and working at older ages, evolving life expectancy, design of pension systems, and pension entitlements before providing a series of country profiles. The special chapter analyses the coverage and adequacy of Latin American pension systems.



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  • Foreword

    Pensions at a Glance in Latin America and the Caribbean provides for the first time an ample range of indicators for comparing pension system design of 26 countries in Latin America and the Caribbean. The indicators are comparable with those of OECD countries and selected G20 members, published by the OECD.

  • Acronyms and abbreviations
  • Executive summary

    The biggest pension policy challenge faced by most countries in Latin America and the Caribbean (LAC) today is low coverage of formal pension systems, both in terms of the proportion of workers participating in pension schemes and the proportion of the elderly receiving some kind of pension income. Efforts to close the coverage gap, for example, through non-contributory pensions, are therefore at the heart of the pension policy debate in the region. However, these policies might pose significant fiscal challenges in the next decades as the population ages.  presents three main indicators describing the demographic conditions relevant for pension policy, namely fertility rates, life expectancy and old-age support ratios. This is followed by a systematic comparison, in , of system designs across countries using the standard OECD Pensions at a Glance typology and presenting several key indicators of adequacy, including gender-specific gross and net replacement rates and pension wealth at different income levels. Finally,  provides the profiles of each pension system in Latin America and the Caribbean in terms of their architecture, rules and parameters.

  • Introduction

    The biennial OECD Pensions at a Glance series was launched in 2005 for OECD countries and subsequently expanded in 2011 to include the remaining G20 countries. Following the launch of Pensions at a Glance Asia-Pacific in 2009, this new regional publication covers pensions in Latin America and the Caribbean; it is a joint product by the Inter-American Development Bank, the Organisation for Economic Co-operation and Development and the World Bank.

  • Policy issues: Coverage and adequacy

    The general issue of coverage and more specifically contribution density is covered in . Coverage, defined both as the proportion of workers participating in pension schemes and the proportion of the elderly receiving some kind of pension income, continues to be the most important pension challenge in the region. In the two decades that followed the pension reforms in Latin America, the share of workers contributing to a pension system of any kind barely changed in most countries, leading to a growing emphasis on policies that would address the stubborn coverage gap. While two countries may have similar, even identical system designs, a significant difference in the patterns of contribution or life expectancy at retirement age would in practice, yield different actual outcomes. Recognising the particular importance of this limitation for Latin America where there is evidence of low contribution density, especially at the lower end of the income scales,  of the report extends the usual micro-level analysis and reports on the sensitivity of the results.

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  • Expand / Collapse Hide / Show all Abstracts Key demographic indicators

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    • Fertility

      The total fertility rate is above the replacement level – the number of children needed to keep the total population constant – in 20 out of 26 LAC countries for 2005-10. The only exceptions are the Bahamas, Brazil, Chile and Costa Rica (at replacement level of 1.9) and Trinidad and Tobago and Barbados at 1.8. However, the fertility levels have declined in each ten-year period over the last 30 years, with the exception of Barbados between 1995 and 2005. Fertility rates have a profound implication for pension systems because they, along with life expectancy, are the drivers of population ageing.

    • Life expectancy

      The remarkable decline in mortality, as evidenced by the increase in life expectancy, is one of the greatest achievements of the last century. Lives continue to get longer, and this trend is predicted to continue. In 2010-15, life expectancy at birth averaged 70.7 years for men and 76.6 years for women. Among women, the figure was highest in Chile (82.6 years), followed by Costa Rica, Uruguay, Jamaica, Panama, Argentina, Mexico and Ecuador, all above 79.0 years. For men, life expectancy at birth was highest in Costa Rica (77.7 years) followed by Chile, Mexico and Panama.

    • Old-age support ratio

      Population ageing is one of the main driving forces behind the wave of pension reforms across the world in recent years. The old-age support ratio is an important indicator of the pressures that demographics pose for pension systems. It measures how many people there are of working age (20-64) relative to the number of retirement age (65+). At the moment, there are just over eight people of working age for every one of pension age on average.

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    • Architecture of national pensions systems

      Retirement-income systems are diverse and often involve a number of different programmes. Classifying pension systems and different retirement-income schemes is consequently difficult. The taxonomy of pensions used here consists of two mandatory tiers: a redistributive part and a savings part. Voluntary provision, be it individual or employer-provided, makes up a third tier.

    • Methodology and assumptions

      Part of the analysis presented in , the indicators of pension entitlements that follow here in  and the results presented in  use the OECD pension models. The methodology and assumptions are common to the analysis of all countries, allowing the design of pension systems to be compared directly. Future entitlements are computed under today’s parameter and rules.

    • Gross pension replacement rates

      The gross replacement rate shows the level of pensions in retirement relative to earnings when working. For workers with average earnings, the gross replacement rate averages 62% in the 26 LAC countries. But there is significant cross-country variation. At the bottom of the range, the Dominican Republic, Haiti, Mexico and Suriname offer future replacement rates of less than 30% for people starting work today with average earnings throughout their career. Ecuador, Nicaragua, Paraguay and Venezuela, at the top of the range, offer replacement rates of more than 90%. Other countries with high projected replacement rates (between 75% and 80%) are Argentina, Costa Rica and Panama.

    • Tax treatment of pensions and pensioners

      The personal tax system plays an important role in old-age support. Pensioners often do not pay social security contributions. Personal income taxes are progressive and pension entitlements are usually lower than earnings before retirement, so the average tax rate on pension income is typically less than the tax rate on earned income. In addition, most income tax systems give preferential treatment either to pension incomes or to pensioners, by giving additional allowances or credits to older people.

    • Net pension replacement rates

      For average earners, the net replacement rate across the LAC averages 66%, which is 4 percentage points higher than the gross replacement rate. This reflects the higher taxes and contributions that people paid on their earnings when working than they pay on their pensions in retirement. Net replacement rates again vary across a large range, from under 24% in the Dominican Republic to well over 100% in Ecuador and Paraguay for average earners.

    • Gross pension wealth

      Pension wealth measures the total value of the lifetime flow of retirement incomes. For male average earners, pension wealth in the region is, on average, 12.0 times annual earnings. The figure is higher for women – 13.7 times individual earnings – because of their longer life expectancy.

    • Net pension wealth

      Net pension wealth, like the equivalent indicator in gross terms, shows the present value of the lifetime flow of pension benefits. But it also takes account of taxes and contribution paid on retirement incomes. Both figures for pension wealth are expressed as a multiple of individual gross earnings.

    • Pension-earnings link

      In some countries, such as Ecuador, Panama and Paraguay, there is a very strong link between pension entitlements and pre-retirement earnings. In contrast, flat-rate benefits in Suriname mean that there is no link between pension and earnings.

    • Weighted averages: Pension levels and pension wealth

      The indicators so far have shown replacement rates, relative pension levels and pension wealth for people at different levels of earnings. By taking a weighted average of these indicators over the earnings range, the measures presented here show the average for the pension level at the time of retirement and pension wealth, the lifetime value of pension payments.

    • Retirement-income package

      The retirement-income package is divided into different components. The first is a redistributive part, designed to ensure pensioners achieve an absolute minimum standard of living. A savings part forms the second, with the aim of achieving a target income in retirement compared with earnings when working. This indicator, showing the division of national pension systems between these tiers and between public and private provision, again demonstrates substantial differences in national policies.

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  • Expand / Collapse Hide / Show all Abstracts Pensions at a Glance/Latin America and the Carribean – Country profiles

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    • Argentina

      The pension system has two components: a basic component and an additional social insurance component. For those aged 70 and above there is also an age-related social insurance component and a social assistance component.

    • Bahamas

      The pension system consists of an earnings-related component and an old-age grant for those with some but insufficient contributions. For those with inadequate income there is a non-contributory pension.

    • Barbados

      The pension system consists of an earnings-related defined-benefit component and an old-age grant. For those with inadequate income there is a non-contributory pension.

    • Belize

      The pension system consists of an earnings-related defined-benefit component and a retirement grant for those with some but insufficient contributions. For those with inadequate income there is a non-contributory pension.

    • Bolivia

      The Integrated Pension System consists of a universal pension, a non-contributory scheme, which includes the Renta Dignidad, a mandatory scheme of individual accounts which include old age, disability and survival benefits, and a solidarity scheme and old-age and survival benefit.

    • Brazil

      The Regime Geral de Previdência Social (RGPS), covers the private sector workforce. It is financed through payroll taxes, shared by the employer and the employee, revenues from sales taxes and federal transfers that cover shortfalls of the system. It is a mandatory, pay-as-you-go financed single-pillar scheme, which is operated by the National Social Security Institute.

    • Chile

      The pension system has three components: a redistributive first tier, a second tier of mandatory individual accounts and a voluntary third tier. The individual accounts of the defined-contribution type. The redistributive first tier was substantially extended in a pension reform in 2008.

    • Colombia

      The system allows people to choose between a defined-benefit system (Regimen de Prima Media – RPM) managed by a public sector entity, and the Individual Savings System with a welfare benefit (RAIS) managed by the private sector. For new affiliates, there is a Minimum Pension Guarantee Fund (MPGF).

    • Costa Rica

      The system consists of a defined-benefit scheme, a capitalisation regime that finances a portion of the total pension, and a non-contributory pension system.

    • Dominican Republic

      The pension system is a contributory scheme, based on individual capitalisation accounts. All workers, both public and private, and their employers must contribute to their respective capitalisation accounts and must pay an insurance premium for disability and survivor coverage. A minimum pension is guaranteed.

    • Ecuador

      The pension system is a defined-benefit system based on earnings. There is also a non-contributory system for the elderly in need.

    • El Salvador

      The pension system in El Salvador consists of a privately managed defined-contribution scheme. A guaranteed minimum pension requires 25 years of contributions by the minimum retirement age.

    • Guatemala

      The pension system consists of a public defined-benefit scheme.

    • Guyana

      The pension system consists of an earnings-related component and an old-age grant for those with some but insufficient contributions.

    • Haiti

      The pension system consists of an earnings-related component and an old-age settlement for those with some but insufficient contributions.

    • Honduras

      The pension system in Honduras consists of a pay-as-you go defined-benefit scheme and an old-age settlement for those who do not have the required number of contributions.

    • Jamaica

      The pension system has a basic component and an additional earnings-related component. For those ineligible for the basic pension there is a social assistance component.

    • Mexico

      Private sector workers that entered after 1 April 2007 or opted for it are covered under a mandatory defined-contribution scheme, privately managed and funded. Contributions are made by workers, employers and government. A minimum pension for private sector workers. Transitional rules apply and for some generations.

    • Nicaragua

      The pension system consists of a pay-as-you go scheme and an income-based defined-benefit scheme.

    • Panama

      The pension system is a mixed system, consisting of a pay-as-you-go defined-benefit scheme and a mandatory system based on individual savings accounts.

    • Paraguay

      The pension system in Paraguay consists of a pay-as-you-go system and an earnings-related defined-benefit system.

    • Peru

      The system allows people to choose either a public pay-as-you-go and defined-benefit scheme or a defined-contribution scheme managed by the private sector. The minimum pension only covers affiliates of the pay-as-you-go scheme; the pension fund option has not been established.

    • Suriname

      The public pension is flat rate based on a residency test (General Old Age Pension Plan – AOV). It is a pay as you go system.

    • Trinidad and Tobago

      The pension system consists of an earnings-related component, and an old-age settlement for those with some but insufficient contributions. For those with inadequate income there is also a means-tested old-age pension.

    • Uruguay

      The insurance system is based on a mixed scheme that receives contributions and grants benefits in combined form, according to earnings brackets. One part is an inter-generational solidarity retirement (defined-benefit) scheme, and the other is a mandatory individual retirement savings (defined-contribution) scheme. Low-income workers can opt to divide their contributions equally between the two components of the scheme. There is a non-contributory scheme for people who earn less than the minimum wage and who are elderly.

    • Venezuela

      The pension system has a basic component and an income-related, defined-benefit component. Those who are not eligible for a basic pension receive a social assistance benefit.

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