• Had Chile failed to implement the 1981 pension reform, which replaced the PAYGO systems with an individually-funded system, there would have been growing fiscal deficits in its pension programs. The 1979 parametric adjustments would only have delayed the emergence of fiscal deficits, which would have arisen in any event after 2025, reaching magnitudes of 8.0% of GDP by the 2050s.
• The 1981 reform created a transitional financial deficit in the former pension programs, due to the diversion of contributions from the PAYGO systems to the AFP system and the payment of Recognition Bonds to the workers who transferred to the new system. However, projections show that the deficit subsequently recorded a downward trend to levels of 2.0% of GDP in 2009 and 1.5% in 2020, and will practically disappear by 2050 (0.1% of GDP).
• In Chile, the granting of the benefits of the solidarity pension system, created in 2008, required increasing fiscal resources in the first ten years of its operation. These resources were equivalent to just over 0.5% of GDP in 2009, rising to 0.8% of GDP in 2018. Benefit amounts increased significantly in December 2019, causing additional fiscal effects. Total fiscal expenditure on the solidarity system is expected to be 1.2% of GDP by 2022.
• The fiscal consequences of the reforms that created the individually-funded systems in Colombia and Peru are different to those in Chile. This is basically due to the fact that the contributory PAYGO systems in these countries were not replaced by the individually-funded system, as occurred in Chile; instead, both systems continue to operate in competition with one another. This implies that in the short and mid term, the Colombian and Peruvian reforms will result in lesser fiscal effects than in Chile, although in the long term the pressure on fiscal financing will be greater in Colombia and Peru, aggravated by the financial problems faced by the PAYGO systems due to demographic trends and other operational deficiencies.
• Social Security transfers for the financing of PAYGO programs from the public budget were approximately 3.7% of GDP in Colombia in 2017. In that same year, pension liabilities were equivalent to almost 110% of GDP. The Colombia Mayor program, that provides subsidies to the elderly living in extreme poverty, on the other hand, had a budget allocation in December 2018 equivalent to 0.1% of GDP.
• In Peru, the figures available from the Pension Standardization Office (ONP) show a deficit in pension programs fluctuating between 0.1% and 0.3% of GDP between 2011 and 2018. The financial problem will be aggravated by demographic trends in future. Expenditure on non-contributory pensions by the Pension 65 Program, on the other hand, required public resources equivalent to 0.12% – 0.13% of GDP between 2014 and 2018.

To download this Note, click on this link.