This study, prepared for FIAP by the consulting firm NOVASTER, seeks to tell you why pay-as-you-go (PAYGO) pension systems are not financially sustainable in a context of accelerated aging such as the one currently occurring in the Latin American and Caribbean region.
The report emphasizes, among others, four central ideas:
- “Solidarity” in the region’s PAYGO pension systems occurs in a direction that is not socially desired: from the most vulnerable to the richest.
- In the face of demographic changes, PAYGO pension systems are subject to “intergenerational lack of solidarity”, in which current generations benefit to the detriment of future generations of pensioners.
- Individual savings systems present a great opportunity to generate good pensions (due to the effect of capitalization of contributions and profitability of investments), but they require a design in accordance with the objectives they pursue (such as adequate contribution rates and pension ages), in addition to policies that promote labor formality in order to achieve higher contribution densities.
- With the demographics expected for the coming decades, in the absence of parametric reforms in the PAYGO pension systems, the replacement rate of a person who begins to contribute now will be on average three times higher in a savings system than in a PAYGO pension system.
Download the full report here (only the Spanish version available now; the English version will be published soon).
