A couple of weeks ago I participated in a panel with international experts on the topic of pensions and politics, within the framework of the annual conference of the “World Pension Alliance” and the subject becomes very relevant when we see that in the next 12 months around half of the countries in the world will have presidential elections and, in many of them, the pension issue will take a central role.

The general diagnosis is that pension systems worldwide are under significant pressure. The impact on pensions of population ageing, new forms of employment in the ‘gig’ economy and the increase in informal employment are of concern to experts across the board. The decisions involved in making the necessary adjustments, in addition, tend to be complex and with high political costs: raising retirement ages, increasing pension contributions and in some countries (mainly European) reducing pension amounts.

Curiously, while European and North American countries aim to increase the role of savings-based pension systems – in the face of the financial unsustainability of their pay-as-you-go systems – in Latin America, governments intend to move in the opposite direction, that is, to expand the role of pay-as-you-go systems to the detriment of savings-based systems.

While the United Kingdom has made progress in strengthening occupational plans based on individual savings, through the automatic enrollment policy, in Colombia, a reform was recently approved in which workers are required to contribute to the public pay-as-you-go system (Colpensiones) for up to 2.3 minimum wages, which involves around 83% of workers. It is worth mentioning that in Colombia since 1997 there has been a public pay-as-you-go system and an individual capitalization system, with workers having the possibility of choosing which one to contribute to.

The Netherlands is in the process of transforming its current defined benefit system to move towards an individual capitalization system with a defined contribution, while in Uruguay there will be a plebiscite in October to decide whether to continue with the individual capitalization system, which, unlike in the Colombian case, coexists in a complementary way with the pay-as-you-go system, meaning that contributions must be made to both systems.

It is well known what is happening in Chile, where the government is proposing to establish a pay-as-you-go system with a significant part of the 6% extra contribution. This has hindered the progress of the pension reform and has prevented the country from making progress on points on which there is broad agreement and which would mean important advances in strengthening our pension system.

It would be desirable for our region, and particularly our country, to move forward on measures that have already demonstrated their positive impact on pension systems in other latitudes instead of continuing to discuss old recipes that have already shown their failure.

Source: La Tercera-Pulso