• PAYGO systems in the sights. In Costa Rica, the Ministry of Finance has admitted to the Costa Rican Social Security Fund (CCSS), that it cannot finance the 0.66% increase in the contribution rate to the PAYGO system (the government contribution was originally 0.58%, rising to 1.24% with the increase), until a solution to the structural fiscal deficit has been found. In another area, the round table for reforming the system has requested another month for delivering a final proposal. In Colombia, a recent study shows that the combination of the demographic transition with the high informality of the labor market makes the existence of a PAYGO pension system unviable. Informality in this country has resulted in only two formal workers contributing to pensions for each senior citizen.
• The pension reform was approved in El Salvador. A reform of the pension system was approved in late September, and will come into effect on October 6. The reform basically increases the contribution rate from 13% to 15% ( 7.25% paid by the worker and 7.75% by the employer). Contributions to the individual account will start at 8% in 2017 and will rise to 11.1% by 2050, while the contribution to the solidarity fund will start at 5% in 2017 and drop to 2% in 2050. This 2% will finance a Solidarity Guarantee Account (CGS), managed by the AFP, which will be activated to cover life annuity pensions when the savings in the individual account have been exhausted. The remaining 1.9% will be used for paying the disability and survival insurance and the AFP’s commission (prior to the reform, this percentage was 2.2%).
• Bills of law for reforming the pension system were submitted to Congress in Chile. 3 bills of law for reforming the pension system were submitted to Congress in August. Two of them seek to create an additional 5% contribution, over and above the existing 10%, and create a government agency to manage it; of this 5%, 2% will go to a collective savings fund, and 3% to personal accounts outside of the AFPs. A third bill of law introduces modifications to the AFP system in terms of competition, efficiency, transparency, and collective VPS, among others. The proposed reform imposes a burden on employees intended to improve the pensions of people who have incomes possibly even better than their’s, which is absolutely regressive, and creates a tax on work that could lead to a loss of up to 400 thousand jobs.

Download the Progress of the Pension Systems in PDF here.