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FIAP > Boletín – Recientes > Progress of the Pension Systems No.5 / November 2023
22 November, 2023

Progress of the Pension Systems No.5 / November 2023

In this edition of the report, we highlight:

  • Crisis in public pay-as-you-go systems: In Germany, the Advisory Council of Government Economists called for gradually increasing the legal retirement age (by 6 months every 10 years), in addition to asking young people to contribute to their private plans, all with to contain public spending on pay-as-you-go system pension program and avoid increases in contributions. In Ecuador, the government, from March to July of this year, has not paid its contribution to the pay-as-you-go pension system, which is why the Ecuadorian Social Security Institute (IESS) warned of the high risk of failing to pay retirees, thus going through a “situation of illiquidity”. In Spain, due to the aging of the population, the Moody’s agency requested adjustments to the pay-as-you-go pension system in order to guarantee its long-term sustainability and thus avoid a deterioration in its credit rating, and at the same time, the OECD in its latest economic study of the country, requested to increase the retirement age (aligning it with life expectancy) and cut pensions, in order to reduce fiscal pressures (it is estimated that pension spending will continue to increase until 2040 due to massive retirements and the impact of the annual revaluation of pension with CPI).
  • United Kingdom: In September, a law was approved that extends the coverage of the pension program based on automatic enrollment, by reducing the minimum entry age (from 22 to 18 years) and eliminating the minimum annual income threshold to participate (of approx. USD 7,646) [prior to this law, contributions to the program were only paid when the worker’s annual income exceeds said threshold].
  • Dominican Republic: The Superintendency of Pensions put into consultation the regulatory framework for the application of complementary pension plans, which may be offered by pension fund administrators (AFP), through which members may make contributions to their pensions accounts through consumption with all authorized payment methods. These plans may provide early options for the withdrawal of funds under certain conditions, such as the acquisition of a first home, and payment for higher education within and outside the Dominican territory or major medical expenses.

Relevant studies:

  • Mercer published the world pension index, which evaluates the pension systems of 47 countries. The best evaluated countries were the Netherlands, Iceland and Denmark, while the worst evaluated were India, the Philippines and Argentina. This edition also analyzes the potential impact of Artificial Intelligence on pension systems.
  • Criteria released a document that provides an x-ray of labor informality in Chile. The report reports that 70% said they agreed that informality is due to low salaries.
  • Instituto Santalucía published a document that analyzes the state of the Spanish pay-as-you-go pension system, through 20 indicators. One of these indicators reveals, through the dependency rate, the progress of aging of the Spanish population.
  • Estudios Públicos released a study showing that the 1980 reform in Chile, when moving from a pay-as-you-go system to one of individual savings, had positive and significant impacts on the labor force participation of people between 50 and 70 years old, particularly among women.
  • The International Social Security Association (ISSA) published a report on the state of non-contributory pensions in the region. The report indicates that these schemes are a complement to contributory programs, which aim to combat poverty in old age and that it is essential to avoid excessive public spending on them and promote formal work with social security coverage, as to avoid sustainability problems.
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