The International Organisation of Employers (IOE), the body that represents companies in debates on social policies and employment at the International Labour Organization (ILO), recently published a report summarizing the global state of social protection systems and presents the future challenges and opportunities they face.

In chapter 4 “Structural challenges: Pensions” (pages 11-12), the main messages are:

1.- The best way to deal with the unsustainability of pension systems is to base at least part of their financing on individual capitalization, the advantage of which is that while pay-as-you-go systems are financed solely through contributions, in capitalization systems resources come predominantly from investment returns.

2.- Given that individually funded pension systems increase the level of savings, they have had positive macroeconomic effects, giving rise to a higher GDP, growth in employment and wages and, therefore, have increased the resources available to finance pensions.

3.- In order to face the demographic challenge and make pension systems more sustainable, countries around the world have totally or partially migrated towards capitalization mechanisms, going from 17 countries in 1999 to 46 in 2022.

We are glad that the ILO has opened up to a debate on individually funded pension systems.

You can download the full report here.