Progress of the Pension Systems No. 3 / April – May 2018
Crisis in PAYGO systems worldwide. Fitch Ratings said that the Brazilian pension system requires further measures to avoid its fiscal collapse. In Costa Rica, work was resumed on the reform of the PAYGO system in April, with a six-month time frame, and in May the deputies agreed to bolster the system with a contribution of up to 15% of the profits of state-owned companies. In Nicaragua, the government announced that it will not continue with the proposed reforms to the PAYGO system due to acts of violence. An increase in the overall contribution rate from 22.25% to 29.5% of wages had been proposed as of 2019, among other measures. In Spain, according to the OECD, the 1.6% rise in pensions announced for 2018 and 2019 calls into question the guarantees of financial balance of the economy, since it would have an accumulated cost of almost EUR 40,000 million by 2030. In this regard, the Bank of Spain has warned that pensions will cost an additional 3.5% of GDP by 2050, and the only remedy for this is to reduce the replacement rate and rely on an automatic revaluation mechanism to ensure the sustainability of the pension system. According to the BBVA, Spain will have the highest dependency rate in Europe by 2050 (77.5 senior citizens over the age of 65 for every 100 people of working age). Finally, in France, President Macron has proposed a reform of the PAYGO system which will be formalized in 2019, the central core of which will be to implement a points system whereby pensions will be the same for identical careers and income (which does not currently occur due to the different pension systems in place).
Peru increased the foreign investment limit. The Central Reserve Bank (BCR) approved the increase of the foreign investment operating limit of the AFPs from 48% to 49% (48.5% as of June, and 49% as of July, 2018).
Lithuania: In April the government proposed a reform of the second individually funded pillar (voluntary), which among other things, stipulates the automatic enrollment of younger workers (under 40).
Uruguay: The National Association of AFAPs (ANAFAP) is promoting a new pension savings subfund for people under 35, which would invest in domestic and international equity, with the aim of improving the future pensions of its members.
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