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5 November, 2021

New proposals for increasing pension savings

In their presentations, the Global Director of Social Protection and Labor at the World Bank, Michal Rutkowski, and the social entrepreneur, José Luis Orós, agree that the great challenges facing pension systems are labor informality and pension gaps. Hence, both of them propose different, but complementary ways of dealing with them.

Despite attempts by pension systems to cover the most vulnerable sectors “coverage has not expanded much since the 1990s,” as Michal Rutkowski points out in his presentation for the 18th FIAP International Seminar on this October 28. This has made it necessary to reformulate such efforts and not only rely on common jobs with contracts, but also incorporate individuals in labor informality situations.

In countries with marginal poverty, such as Rwanda, Togo, Kenya and Uganda, a significant portion of informal households are able to overcome crises thanks to their ability to save (37%, according to Rutkowski’s data). There are other households that only earn enough to survive, or are vulnerable to sudden changes (34% in poverty and 18% non-poor, informal and unable to resist). Finally, only 10% are covered by some kind of social security.

One of the main proposals put forward by the Polish economist is a voluntary contribution system that emulates bank accounts and is flexible in terms of the level of savings and frequency of payments. Other recommendations for this system are tax incentives for contributing, which consider the most vulnerable sectors of society, which, as far as possible, are enrolled in other systems, such as health insurance.

José Luis Orós, on the other hand, is a partner and founder of the “Pensumo” application, a pioneering endeavor in Spain that seeks savings through consumption. Through this free application, a percentage of the purchases made in associated stores (physical and online) is accumulated in an insured savings product, where it can be accessed by individuals to complement their pensions. Pensumo also offers incentives for environmental solidarity and collaborative actions, such as recycling, road safety, cycling, among others.

“The company has 15,000 registered users on its platform, who have engaged in more than one million transactions. Namely, shopping, recycling, careers, and other activities,” explained its CEO.

“Saving through consumption could generate an increase in pensions of up to 30% for people with greater pension gaps, with an associated fiscal cost of between 0.18% and 0.45% of GDP,” explained Manuel Tabilo, FIAP’s Research Manager.

Similar projects have been proposed in Chile and Peru, adding a value to products, with the State being responsible for distributing the money to the individually funded accounts. To prevent those who consume more from obtaining greater benefits, the government will subsidize the contributions via consumption of workers in the lowest income quintiles. Mexico, on the other hand, sought to emulate the Spanish experience of Pensumo with the “Miles for Retirement” platform.

The presentation can be viewed on the seminar’s website (https://seminariofiap.strim.cl/).





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