The structural problem of pensions in LatinAmerica

Low pensions in Latin America are a problem that no government has been able to solve.

Older man walking down a street

Low financial compensation after years of contributions has become a problem for retirees in Latin America. / Photo: Pixabay

Latin Amerinca Post | Ariel Cipolla

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Retirees have always been neglected in Latin America. Regardless of the governments, the elderly population always seems to be in discomfort due to the constant low economic compensation after years of contributions.

For example, recently a new controversy arose over the formula proposed by the Argentine government of Alberto Fernández called the Retirement Mobility Law. This could hit pensioners much more than the one proposed by former President Mauricio Macri since the current one is not updated quarterly in inflationary terms, but now it does so semi-annually for salaries and tax collection, meaning lower income for this sector in function of the economic instability of the country.

When the Frente de Todos was the opposition, it criticized the low amount of money that this formula meant. However, when proposing a new one and updating it, the amount received was lower in inflationary terms compared to that implemented by Cambiemos (Macri's party). In other words, a fiscal and pension adjustment is made, even when the current president had promised in the campaign the possibility of "re-empowering" this income.

This is not an isolated case: for example, in Uruguay, we saw that, for the first time in 15 years, there was an increase in pensions that is below inflation. That is, historically retirees seem to "lose out" in relation to the economic policies of Latin American countries.

The problem of retirees in Latin America

There is a sector that is always dissatisfied: retirees. Sometimes it seems that being able to enjoy a retirement in Latin America is an illusion of many, but a reality of few. As the population ages, there seems to be no certainty about universal pension coverage, due to different rules that impoverish the region.

For example, the reports of the Development Bank of Latin America (CAF) in its study of the pension and health systems in Latin America mention that a large number of people feel that "pensions are not enough." 63.9% of current wage earners in Santiago de Chile believe that this value is very insufficient and that it will not reach them in the future. This trend is replicated in Buenos Aires, with 41.8% or 46.5% in Lima.

Hence, there is a worrying situation in the pension systems in Latin America. The panorama varies from country to country, but there is a reality: the economic rights of the elderly are in no way guaranteed since they always seem to be "struggling" to make ends meet.

One of the main difficulties is that fiscal sustainability cannot be guaranteed, as there are problems of temporal inconsistency. That is to say, in the campaigns all the governments promise to improve the income of this sector, but it never ends up materializing. It even seems that they are considered a “burden” on the tax systems.

According to the Economic Commission for Latin America and the Caribbean, more than half of the elderly in the region do not receive a pension from a contributory system. In other words, not only are there low incomes for those who did contribute, but many other people are left out of the system, for having worked in the black.

The problem in Venezuela is more serious, to the point where it can be considered an ordeal for older adults, who have to collect the lowest retirement in the entire region: about $ 3.3, according to a report by the Venezuelan Institute of Social Security. This occurs due to hyperinflation that rapidly destroys the purchasing power of the bolivar, the national currency.

Also read: Is there a global crisis in the pension systems?

In the case of Chile, a reform of the pension system was recently approved in order to combat the current economic crisis. Basically, a withdrawal of 10% of the balance of the funds was approved, having a maximum amount of $ 5,600 and a minimum of $ 1,300. However, the project contemplated the creation of a Collective and Solidarity Pension Fund, with the aim of supporting the AFPs (Administrators of Pesiones Funds) through state and employer contributions, in addition to the generation of a public and autonomous entity to invest the funds of retirees. However, this part did not end up being approved.

In Brazil, a pension reform promoted by the government of Jair Bolsonaro was also approved. The main measures taken were to raise the retirement age to 62 years for women, while men stay at 65 years. The intention? Eliminate the country's fiscal deficit, although that means that workers have to stay in business for more years.

This suggests that retirees were always a sector hit by the fiscal policies of Latin America. As these are people who no longer provide income to the country, governments seem to forget that they are still a fundamental sector of a nation. All contributing retired workers need to have a fair retirement, without problems or excuses.