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FIAP > Featured Content > Pension Notes No 84: Mechanisms for the inclusion of informal workers in social security
4 February, 2025

Pension Notes No 84: Mechanisms for the inclusion of informal workers in social security

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Latin America faces the serious problem of informal employment: one in two workers in the region is informal. This situation not only leaves these workers totally unprotected against incidents during their working life, but also condemns them facing old age without a decent pension.

Unfortunately, informal employment has unavoidable consequences for future pensions, especially for younger workers. Estimates made for the Chilean case show that when a worker does not contribute during the first years of his working life, his pension is reduced by close to 72% in the case of women and to 73% in the case of men.

In this way, informal employment becomes one of the fundamental causes of both the low coverage and the low amounts of pensions in our region. Therefore, if we want to move towards more robust pension systems, it is necessary to take charge of this important group of workers, promoting the formalization of employment, but also designing innovative strategies that allow them to join social security through non-conventional mechanisms.

Traditional social security systems created with stable labour relations between employers and workers in mind often do not adjust to the reality of informal workers, self-employed workers or workers with fluctuating incomes. These workers may have difficulty making the regular monthly payments required by social security due to their variable income, which may be difficult for them to afford. Therefore, to achieve their incorporation, it is key to making traditional systems more flexible so that informal workers can be included.

Concerned about this reality, FIAP, through a review of international experiences, presents in this note seven suggestions for the incorporation of informal workers in particular:

  1. Unique tax (“Monotributo”)
  2. “Sachet” strategy
  3. Collection through patents or invoices for services
  4. Quotations through consumption
  5. Strategies from behavioral economics
  6. Information campaigns and use of social networks
  7. “SeLFIES” (Standard of living indexed Forward Income Securities) or retirement bonds

Check the NOTE here

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