The Inter-American Development Bank (IDB) today presented the book "Reshaping Retirement: Navigating Latin America’s Pension Systems after COVID-19," which highlights the pandemic’s impact on the region’s labor markets and pension systems and offers recommendations for policies to improve the quality of life of the elderly.
The publication, the result of a collaboration between the IDB and several research centers in the region, presents studies on the pension systems of Argentina, Chile, El Salvador and Peru.
The findings show that while the depth and duration of the pandemic's impact on pension funds varied across countries, some of them are still in the process of recovery. It also presents ideas for policies to improve pensions’ quality and to design equitable, sustainable and resilient systems for coming generations.
The publication states that, in general, the pandemic had a negative impact on pension systems throughout the region and the world, with its effects varying depending on the type of pension system. In the case of pay-as-you-go systems, it explains that future benefits for active workers would not change significantly due to the crisis’ short duration. However, benefits could change for people close to retirement affected by unemployment, who would need to complete the vesting period for the benefit and the required number of contributions.
In individual account systems, where members assume the investment market risk, the pension balance would be affected both by a lack of contributions during the unemployment period and by a market downturn. In the short term, these factors reduce the amount of the benefit that an individual could receive close to retirement.
The study also notes that the push in many regional countries for laws allowing active workers to take early withdrawals of assets did have a strong impact on these systems and, in some countries, a significant number of workers were left with a zero balance. This poses a potential challenge for fiscal accounts, as governments may have to provide workers with a minimum pension guarantee.
More broadly, research has found that many pension systems are not fully funded, requiring government transfers. In addition, they are likely to be affected because governments emerged from the COVID-19 crisis highly indebted and with fiscal deficits. This means that fewer resources will be available for transfers to pension systems and that countries will likely need to address fiscal, pension reforms and/or partial indexation of pension benefits to cover these imbalances.
In particular, the book underscores that some countries will need a comprehensive pension system reform focused on the objectives of coverage, adequacy of benefits and sustainability. These reforms must necessarily go beyond short-term, piecemeal solutions, and will require all political and economic actors to find comprehensive, long-term solutions to the pension systems’ shortcomings.
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Cavelier,Andres
Press Coordinator
Planes,Maria Soledad
Human factor
Human Factor is the blog of IDB’s Labor Markets and Social Security Division. It focuses on employment, access to jobs, human capital development, skills for work and pensions. Our goal is to improve lives with quality jobs for the development of Latin America and the Caribbean.
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The blog of the IDB's Research Department shares ideas that matter on public policy and development in Latin America and the Caribbean.