This study examines the case of Colombia, an emerging country in which the combination of the demographic transition with high labor market informality makes the existence of a PAYGO pension system unviable.

In theory, a country like Colombia still has a young population and is, therefore, “enjoying” the so-called demographic bonus, or dividend. In these circumstances, it has a relatively high ratio of economically active population vs. adults at retirement age (almost 7 active workers for every adult over 65), which should enable active workers to finance the pensions of senior citizens with their contributions for some time more (“intergenerational solidarity”).

However, informality has resulted in only two formal workers contributing to pensions for each senior citizen. In these circumstances, the report states that even if all necessary measures for improving labor formality were to be taken immediately, when such measures take effect, the ratio between active workers and senior citizens would have dropped significantly, and Colombia would have already lost its demographic dividend. Thus, young people who today show solidarity with the elderly, will not have anyone to show solidarity with them when they retire.