The main long-term challenge facing pension systems is still the provision of financially and socially sustainable pensions. To meet this challenge reforms must be carried out to the structure, integration, and complementarity of contributory and non-contributory pension programs, regularly updating their parameters.
Traditional pension systems in Europe are transitioning towards multi-pillar pension systems. An increasing role of private pension programs with individual accounts has been observed in mandatory, quasi-mandatory and voluntary systems, aimed at complementing the deteriorating pensions of the PAYGO systems and resolving the lack of portability of accumulated savings. The same trend has been observed in the world’s best pension systems.
Total assets in private pension savings schemes in OECD countries have risen significantly over the past two decades, from 59.0% to 105.1% of GDP between 2001 and 2021. The three countries with the best pension systems in the world are also those with the highest levels of accumulated assets in private savings plans.
The need to increase coverage of voluntary pension schemes led twelve countries (USA, France, New Zealand, Italy, United Kingdom, Canada, Turkey, Germany, Lithuania, Poland, Gibraltar and Slovakia) to implement automatic enrolment between 1998 and 2023. Ireland will join them in 2024.
These international trends and experiences show that the creation or strengthening of PAYGO systems in Latin America would be a disastrous public policy. Moreover, our region has evidenced that PAYGO systems have failed and have been regressive and unsupportive, with significant risks, given their structural characteristics.
