Is there a global crisis in the pension systems?

Russia faces a strong social crisis because of the rising age of retirement. How does Latin America perform in this area?

Is there a global crisis in the pension systems?

Thousands of people marched in the main Russian cities against the coming pension reform. The parliament approved, in the first instance, the gradual increase in the retirement age from 60 to 65 years for men and from 55 to 63 years for women.

Leer en español: ¿Hay crisis mundial en los sistemas pensionales?

The measure, which President Vladimir Putin apparently does not like, has been described by the government as "necessary". According to the president's speech, of July 20 of this year, although Russia might not advance the reform in the short term, the pension system is not sustainable in the future, since for every 5 pensioners there are 6 workers.

However, the majority of the population does not agree with the measure. Russia is a country with a life expectancy of 69 years, and citizens think that, as things stand, they are working too long and do not have a satisfactory retirement period.

Now, the world has seen that different countries have had problems with their respective pension systems. France, Spain, and Italy have had to reform their systems to face their demographic crisis, that is, the growing aging of the population. Europe is part of this trend that endangers their economies and Russia is no exception.

However, the pattern does not repeat itself in other regions of the world. Africa, the Middle East, Southeast Asia and Latin America are areas that have young populations. This being so, how are the pension systems in Latin America?

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First, some data should be analyzed. According to the World Bank, there is no significant difference in the percentage of the population between 15 and 64 years old for Latin America (67%) and Europe (66%). However, if we observe the data of the International Labor Organization on active populations, by 2017 in Europe the numbers are stabilized, while in Latin America they are increasing steadily. This means that eventually the European labor force will stagnate, thanks to the demographic crisis, which endangers the integrity of the pension systems.

Latin America, on the other hand, has a growing workforce that is young. The problem is that this does not mean the stability of their pension systems. Take, for example, Nicaragua, which is experiencing a serious social conflict because of reforms to the pension system. Daniel Ortega’s government tried to increase the contribution to the state system by 5% and reduce the pension by the same amount.

Unlike Nicaragua, Colombia has a dual system, offering a state option or private funds. However, this is not a sustainable system over time and the incoming government of Iván Duque must face that situation. Although in campaign Duque promised not to raise the age of retirement (57 years women and 62 men years), he may reform some fundamental aspects, like the one of the highest subsidized pensions to retired officials.

In Argentina, at the end of last year, the government of Mauricio Macri approved the readjustment of pension payments for retirees. Approximately 1.3 million people were affected by the measure, although the government maintains that it only applies to those who have contributed for at least 30 years. However, in this case, the system was not reformed to safeguard its integrity, but to adjust pensions to the value required by Argentine law for years, in accordance with the minimum wage.

Chile has a very stable system, but it is affected by the same problems that all countries will face eventually, especially when their economy is consolidated. The increase in life expectancy, the second highest in Latin America, the intermittence in contributions and the aging of the population will be the causes that will force a prompt reform. From some sectors of Chilean society, there is even a call to adopt a solidary system to not leave the most vulnerable sectors of the population unprotected.

Most systems in Latin America are in a state of fragility. Mexico needs to reform theirs to increase coverage. Brazil must do it not to collapse, because it is one of the most generous systems that exist. The point is that these systems are not designed for the demographic conditions of the region or take advantage of the abundance of young population to guarantee a minimum of stability.

Latin America will continue to grow in population at least until the middle of this century and to find a pension balance, one should look for a greater formalization of the labor base and that the economies remain stable. With greater security of work, the contributions should not be affected and may prolong the life of systems that are fragile from its design.


LatinAmerican Post | Iván Parada Hernández
Translated from “¿Hay crisis mundial en los sistemas pensionales?”