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FIAP > Boletín – Recientes > Pension Notes No.66 – Analysis and evolution of non-contributory old-age pensions in Latin America – November 2022
24 November, 2022

Pension Notes No.66 – Analysis and evolution of non-contributory old-age pensions in Latin America – November 2022

The main purpose of non-contributory pensions is to reduce poverty levels in old age by ensuring a minimum level of income for all citizens when they reach a certain age.

The number of Latin American countries with non-contributory pensions increased from six in 2000 to fifteen in 2017. However, there is still a significant gap, with 41 per cent of the population over the age of 65 not receiving any kind of pension. The following observations were made regarding the countries under study:

  • Coverage: Bolivia and Mexico universalized non-contributory pensions and Chile created the Universal Guaranteed Pension (which covers 70% of the population aged 65 or more). In the other countries under study, coverage is limited, ranging from 3.5 to 37.8 per cent.


  • Pensions: Costa Rica, Chile and Uruguay provide non-contributory pensions close to 100% of the poverty line, while in other countries the benefits granted do not amount to even half of the poverty line.


Expanding coverage and increasing the level of pensions in these types of programs are necessary given the reality of Latin America, but they can have significant fiscal costs and distort labor markets if the pensions are very high and/or the design contains implicit taxes. Existing studies show that non-contributory pensions with an implicit tax have reduced labor participation and contributions to contributory programs, especially among women and those closest to retirement.

Only in Peru does one lose the right to receive a non-contributory pension on obtaining a contributory pension. However, in Bolivia, El Salvador and Chile, there is an implicit tax, because receiving a contributory pension implies the reduction of non-contributory benefits for all or some groups of pensioners. In the remaining countries there is no direct link between non-contributory and contributory pensions, but obtaining non-contributory pensions could also affect the entitlement to non-contributory pensions if the eligibility conditions are no longer met.

On the other hand, non-contributory pensions are usually financed from the public budget, as recommended by international institutions such as the OECD. However, in Colombia, Costa Rica and Uruguay, the funds come, at least in part, from social security contributions. In the latter case, incentives to work in the formal labor market and to contribute to contributory programs are affected.

To review the full pension note, click here.


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