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FIAP > Boletín – Recientes > Progress of the Pension Systems No. 1 – January- February 2022
29 April, 2022

Progress of the Pension Systems No. 1 – January- February 2022

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  • Crisis in PAYGO systems. According to a Transamerica survey, 73% of American workers are concerned that social security (PAYGO system) will not be available to them when they retire. Pension expenditure in Spain marks an all-time record, rising by 6.5% in January 2022, to 10,745 million euros. The reserves of the public PAYGO system (IVM) in Panama drop 20% in one year. In Puerto Rico, on the other hand, the Fiscal Oversight Board has requested additional funds for the pension reserve. It warned that the fund will barely achieve 12.4% funding in 10 years, instead of 50%.
  • New pension programs and social security reforms. The “Universal Guaranteed Pension” (PGU) is introduced in Chile. It will be paid to all long-term residents aged 65 or older, except the wealthiest 10%. A new law is enacted In Spain that makes numerous reforms to the pension system such as: (i) Higher penalties for early retirement; (ii) Expansion of bonus options for pension deferral and (iii) Elimination of social security contributions for certain older workers, among others. In Malaysia, the government extended a temporary reduction in the employee contribution rate under the Workers’ Provident Fund (from 11% of monthly income to 9%, until June 2022) and extended eligibility for State contributions to a voluntary savings program (i-Saraan).
  • Reforms proposed or to be discussed. A bill of law regulating digital platform workers is submitted in Chile. When the new regulations come into effect, these workers will be entitled to social security, training, and collective bargaining, among other benefits. In Colombia, on the other hand, the Association of Pension and Unemployment Fund Managers (Asofondos) submitted a proposal to reform the pension system. One of the proposals is to unify the individually funded and PAYGO pension systems. In Ecuador, in turn, a reform bill of law for restructuring the Ecuadorian Social Security Institute (IESS), which manages the PAYGO system, will be submitted to the Executive in April 2022, with the aim of addressing its sustainability issues.
  • Relevant studies: According to an International Monetary Fund (IMF) study, a substantial improvement in pension amounts is possible, even though the Chilean pension system is providing low replacement rates compared to its OECD peers. Such improvements would be possible with reforms to increase contribution rates and the retirement age, along with policies to increase the density of workers’ contributions.
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