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Latin America - Pension Policy

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When people retire, they maintain themselves economically in one or more of three ways: savings, dependence on an extended family, a pension. Few Latin American elders appear to have sufficient savings to sustain themselves in old age, and while many elders, especially unmarried ones, reside in extended family households, others reside alone. So what is the pension situation?

Most Latin American countries have had public pension schemes on the books since the 1940s (some as early as the 1920s or as late as the 1960s), but the schemes have often been specific to particular occupations in the formal economy and much of the population consequently has gone uncovered. Sometimes only public servants (including the military) seem to have adequate coverage. Benefit amounts have varied considerably, so that many people receiving a pension have received inadequate amounts. Finally, retirement age has tended to vary; some people have retired as early as age forty-eight (women) or fifty-three (men), while others have had to wait until age sixty-five.

Although pension policies differed, until recently most shared the characteristic of being pay-as-you-go systems, mainly for people in the formal economy. Such systems depend on the current labor force to finance the pensions of retired people. These systems can break down when demographic shifts in the population cause too many elders to be eligible for pensions for the current labor force to support. This problem is compounded when poor economic conditions further erode the pool of pension money available. During the 1980s analysts seemed to heed alarms about demographic aging amid harsh economic conditions in Latin America. The leader in this respect was Chile, with Peru, Argentina, Colombia, Mexico, Uruguay, Costa Rica, and, to some extent, Brazil following. In Chile's system, salaried workers make earnings-related contributions to an investment fund; self-employed workers and workers in the informal economy are not automatically included. In Peru and Colombia the proportion of the labor force contributing to pensions is about one-fourth. The proportion in Chile is higher, but the scheme's effect is not yet known because years of participation are required.

Major pension system reform schemes can be referred to as unitary, dual, or mixed systems. Under a unitary scheme, such as that in Chile and Mexico, people enrolled in the former social insurance scheme are placed into a new capitalization scheme. Dual systems, such as in Colombia and Peru, have both the older social insurance scheme and a newer capitalization scheme. People choose one of the schemes. The mixed schemes of Argentina, Uruguay, and Costa Rica have elements of both types of schemes. Such schemes may reflect older populations, higher income per capita, and a stronger commitment to the redistributive principles behind social insurance.

SUSAN DE VOS ALBERTO PALLONI

BIBLIOGRAPHY

BARRIENTOS, A. "The Changing Face of Pensions in Latin America: Design and Prospects of Individual Capitalization Pension Plans." Social Policy & Administration 31 (1997): 336–353.

DE VOS, S., and HOLDEN, K. "Measures Comparing the Living Arrangements of the Elderly." Population and Development Review 14 (1988): 688–704.

MARTIN, L. G., and KINSELLA, K. "Research on the Demography of Aging in Developing Countries." In Demography of Aging. Edited by Linda G. Martin and Samuel H. Preston. Washington, D.C.: National Academy Press, 1994. Pages 356–403.

MESA-LAGO, C. Health Care for the Poor in Latin America and the Caribbean. Washington, D.C.: Pan American Health Organization, 1992.

MESA-LAGO, C. Changing Social Security in Latin America: Toward Alleviating the Social Costs of Economic Reform. Boulder, Colo.: Lynne Rienner, 1994.

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