A quarter century of pension reform in Latin America and the Caribbean : lessons learned and next steps

The social security equation is worsening around the world with the aged population growing faster than the labor force. In the last two decades of the twentieth century, the Latin American and the Caribbean region was faced with what seemed insurmountable difficulties in this regard. Social security expenses had grown with the inflation and upward adjustments of wages and widespread tax evasion. Within this framework, several countries in the region undertook a profound overhaul of their social security systems, replacing them fully or partially with a privately managed and invested system. These far-reaching reforms have changed the way social security is viewed and, as a consequence, policymakers around the world are looking at the experience of the region. A Quarter Century of Pension Reform in Latin America and the Caribbean provides an analysis of these reforms, what worked well, what did not, what are the lessons learned and what are the next steps. Contents......Page 5 Acknowledgments......Page 7 Foreword......Page 9 SECTION ONE: Overview......Page 11 The Motivation for Reform......Page 13 Design Considerations......Page 17 Institutional Structure for Reform: Some Prerequisites for Success......Page 26 Fiscal Discipline and Sustainability......Page 30 Financial Considerations......Page 36 References......Page 48 SECTION TWO: Structural Reform Dilemmas......Page 51 CHAPTER 2 Evaluation of a Quarter Century of Structural Pension Reforms in Latin America......Page 53 Key Concepts and Description of the Reforms......Page 54 The Structural Pension Reforms......Page 57 References......Page 88 CHAPTER 3 Fiscal and Institutional Considerations of Pension Reform: Lessons Learned from Chile......Page 93 The Pension System before the 1980 Reform......Page 95 Overview of the 1980 Pension System Reform......Page 97 The Pension System Transition......Page 99 The Welfare-based, Noncontributory Pension System (the PASIS)......Page 116 Institutional Effects of the Pension Reform......Page 120 Fiscal Effects of the Pension Reform......Page 122 Conclusion......Page 130 References......Page 133 CHAPTER 4 A Needs Assessment of Pension Systems in the English-Speaking Caribbean......Page 137 Economic and Social Conditions in the Region......Page 138 The Region’s Social Security Systems......Page 143 Unresolved Issues and Main Needs......Page 152 Annex 4.2. Questionnaire: Status of and Expectations for National Pension Systems......Page 166 References......Page 171 SECTION THREE: Parametric Reforms as an Alternative Model......Page 173 CHAPTER 5 Public and Private Roles in Pension Reform: An International Comparison......Page 175 The Reform Debate......Page 176 Private Management Models......Page 185 Management Models and Contribution Rates......Page 187 Management Models and Benefit Predictability......Page 189 Comparison of Models......Page 193 References......Page 194 CHAPTER 6 The Politics of Pension Reform in Brazil......Page 197 The Logic of Collective Action in Pension Reform......Page 200 Concentrated Benefits and Diffused Costs: The Evolution of Brazil’s Pension System......Page 204 Concentrated Costs and Diffused Benefits: Pension Reform......Page 207 Conclusions......Page 222 References......Page 225 SECTION FOUR: Reinforcing Reforms in the Region......Page 227 The Success of Chile’s Model......Page 229 Aspects of the Reform that Merit Special Attention......Page 230 Difficulties with the Reforms......Page 233 Multifondos: Better Risk Profiles, More Valuable Information......Page 236 The Annuities Law and the SCOMP......Page 239 The Ongoing Reform Agenda......Page 243 References......Page 248 The Mexican Pension Reform......Page 251 Importance of Retirement Saving and its Regulation......Page 252 The Investment Framework......Page 254 Prudential Regulation......Page 275 Risk-based Supervision......Page 281 Concluding Remarks......Page 283 References......Page 285 CHAPTER 9 The Impact of Argentina’s Economic Crisis on its Pension System......Page 287 The History of the Argentine Pension System......Page 288 The Crisis......Page 296 The Effect of the Crisis on the Pension System......Page 301 Short- and Long-Term Effects of the Crisis......Page 305 An Agenda for the Future......Page 307 Conclusion......Page 312 References......Page 313 CHAPTER 10 Annuities and Pension Reform: Main Issues in Devloping Countries......Page 315 Annuities: An Overview......Page 317 Brief Literature Review......Page 318 Annuity Designs and Uncertainties......Page 319 Annuity Markets in Latin America and the Caribbean......Page 327 References......Page 344 SECTION FIVE: The Pension Industry Point of View......Page 349 CHAPTER 11 Agenda for the Reform of Pension Systems in Latin America......Page 351 The Chain of Production of Pension Systems......Page 352 The Agenda for Reforms......Page 355 Cost of Managing Processes Assigned to AFPs......Page 376 Conclusions: Toward a New Agenda......Page 381 Bibliography......Page 384 Introduction and Methodology......Page 385 The Global Financial Well-being Study......Page 387 Detailed Report of Findings......Page 390 A Call to Action......Page 413 About the Authors......Page 415