Progress of the pension systems No. 4 – 2021 / June-July 2021
Crisis in the PAYGO pension systems around the world. In Argentina, 6 out of 10 of the new pensioners have had to resort to moratoriums (a measure for those who wish to retire and do not comply with 30 years of contributions) or to non-contributory pensions. In Costa Rica, the drop in births has forced to propose reforms to the public PAYGO pension system, among which are gradually eliminating the anticipated pension for 2029, and modifying the calculation of the average reference salary used to calculate the pension (based on the best 25 years of wages instead of the best 20 years). In Ecuador, the Ecuadorian Social Security Institute (IESS) is running out of funds to pay pensions since 2022 (the cash deficit began in 2014, and it is estimated that by 2025 it will reach USD 2,800 million). In Spain, Social Security debt continues to reach record levels, reaching USD 100,373 million in May 2021, which represents an increase of 42% compared to May 2020, increasing the risk of future cuts in pensions. In Greece, the IMF published a report highlighting the need to continue deepening reforms in the public PAYGO pension system to improve its sustainability. And in the Dominican Republic, Diego Valero, president of Novaster, warned that changing the individually-funded pension model for a PAYGO pension system would imply raising the contribution rate from 8.4% to 27.4%, necessary to cover the deficit for 40 years.
Australia: On July 1, the government implemented changes to the mandatory occupational pension program (“Superannuation”), including an increase in the minimum contribution rate from the employer (from 9.5% to 10%).
China: On June 1, the country introduced a pilot program of individual voluntary pension savings accounts (third pillar), with a duration of one year; it will be administered by six insurance companies and will initially cover residents in two jurisdictions in the country
Spain: The Government has approved a principle of agreement to reform pensions, which would enter into force on January 1, 2022, and which, among other aspects, discourages early retirement and favors delayed retirement. In addition, the government is planning to introduce an automatic enrollment system for pension savings, mimicking some aspects of the existing system in the United Kingdom, which, if approved, would take effect at the end of 2022.
Greece: New bill of law establishes mandatory individually funded pension funds for the youngest workers.
