That a large part of the population is excluded from having access to contributory pensions has led to a notable increase in non-contributory pensions in recent years. Non-contributory pensions are monetary transfers by the state to elderly or disabled people who have not made contributory contributions throughout their lives due to the informality of their work. Between 1990 and 2016, the number of countries with non-contributory pension systems increased from 8 to 26. This system, according to the report “Social Panorama of Latin America 2017” from the Economic Commission for Latin America and the Caribbean (ECLAC), has significantly increased coverage in the region, helping to reduce inequality.
While between 2002 and 2015, the average monthly amount of pension benefits increased by 31%, at the end of the period the coverage rate among Latin American countries remained extremely varied. While the rate of coverage of the group of countries led by Bolivia, which includes Argentina, Brazil, Chile and Uruguay was higher than 80%, the rate of the group of countries composed of Colombia, El Salvador, Guatemala, Honduras and the Dominican Republic was lower, at 30%.
On the other hand, the demographic context in which the pension systems are developed is fundamental to determining contribution capacity and future demand. The current decline in the demographic dependency is, “an opportunity to make productive investments and increase social investment in health, education and against poverty,” according to the ECLAC report.
Time is of the essence, however, since the aging process in the region, characterized by an increase in the percentage of older people and a decrease in children, is fast and exceeds that of the developed world. In fact, people over 60 years of age will exceed those under 15 by the year 2036 and will continue to grow until 2080. This means that governments have relatively little to carry out reforms that address future challenges such as coverage, adequacy of pension system benefits and financial sustainability, due to the decrease in the relationship between contributors and beneficiaries, especially in public systems. On the other hand, for individual capitalization systems, the challenges are linked to the “erosion of the principle of solidarity by directly correlating benefits with contributions, which would replicate the inequalities of the labour market and fail to provide mechanisms for redistributing contributions and risk between generations.”
ECLAC states that to achieve universal systems that can reduce social gaps and guarantee the right to security and social protection, governments must plan public policies taking into account demographic processes and a long-term vision.
Jeronimo Giorgi, a Uruguayan journalist dedicated to international issues, is pursuing a master’s degree in Latin American Studies. He has collaborated with various media outlets in Latin America and Europe, and has received distinctions such as the Premio Rey de España for Journalism.
Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: Casi un tercio de los latinoamericanos no tienen derecho a una pensión.
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*Guest blog posts do not reflect the views of FocusEconomics.
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