1. Better Pensions
Better Jobs
Towards Universal Coverage in Latin America and the Caribbean
Angel Melguizo
OECD/IOPS Global Forum on Private Pensions
5-6 November 2013. Seoul, Republic of Korea

2. Korea vs. Latin America
Per capita income in LAC-7 and Korea
(GDPpc; PPP Current international dollars)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1980
ARG
1985
BRA
1990
COL
1995
ECU
2000
KOR
Source: IMF World Economic Outlook, October 2013
2005
MEX
2010
PER
VEN

3. Asia and Latin America and the Caribbean share the
coverage challenge
‘Formality gaps’ (contributors/workers – international pattern GDPpc-based)
PER
MEX
TTO
COL
BOL
VEN
GTM
ECU
ARG
DOM
SLV
HND
PRY
NIC
PAN
JAM
BRA
CHL
URY
CRI
BRB
GUY
-40%
SIN
BRU
THA
BHU
HK
INDO
PAK
PAP
IND
MAL
KOR
NEP
BAN
MLD
CHN
SRI
VTM
PHI
MON
JAP
-20%
0%
20%
40%
-60%
Note: Average labor formality in LAC: 41% (45%e); Asia: 33% (42%e)
Source: Bosch, Melguizo and Pagés (2013) and own elaboration
-40%
-20%
0%
20%
40%

4. Better Pensions, Better Jobs. Towards Universal
Coverage in Latin America and the Caribbean
 Diagnostic of pension coverage in the region
 A conceptual framework
 Study recent policy innovations
 Offer guidance for policy reform
www.universalcoverage.net

5. Low pension coverage in LAC: 4 out of 10 among
Pop 65+ do not get a pension
(National Household Surveys data)

6. Non-contributory pensions are one of the major
innovations
Source: Bosch, Melguizo and Pagés (2013)

7. However, institutions are not well established yet
The slippery slope of non-contributory pensions
Source: Bosch, Melguizo and Pagés (2013)

8. The labor market at the epicenter of the challenge
and the solution
Only 44,7 % of workers in LAC contribute to a pension system
(National Household Surveys data)

9. Pension savings are low for non-wage earners,
workers in small firms, or low-income workers …

10. … but also for the emerging middle class

11. Pop 65+will more than triple in four decades
(United Nations and Celade projections)

12. Between 47% and 60% of adults 65+ (up to 83M) will
not have an adequate pension, with consequences:
 Social: Families will need to devote greater effort to
the care of the elderly.
 Political: Adults 65 + will make up between 20% and
30% of the potential voters.
 Fiscal: Lack of coverage represents (also) an implicit
fiscal cost.
 Economic: How coverage gaps are closed can have an
impact on productivity growth.
(IDB projections based on historical elasticities of formality to GDPpc and national
legislation)

13. Informality is not an incurable disease
It is the outcome of:
 Designs: Systems exclude (de jure or de facto) nonwage earners.
 Incentives: Provided by the state in labor markets
(including monitoring).
 Value: Placed by workers and firms on social security.
All this can be changed with adequate policies.

14. A conceptual framework to understand informality
Difficulties to longterm savings
Problems to
generate pension
savings due to
design and
functioning
Parallel social
protection schemes, as
a response to coverage
gaps in traditional
programmes
Low pension
savings in LAC =
High labor
informality

15. High costs of formality (taxes and labor regulation)
could be playing a role
Cost of formality in selected economies in LAC
(Percentage of wages)
Taxes and contributions
Source: Pagés (2010)
Holidays
Other benefits
Firing costs

16. Policy makers are faced with two objectives
Increase
coverage today
Secure coverage
in the future
Non-contributory
Pensions
Increasing
contributions

17. It’s possible to eradicate poverty in old age and to
increase formal employment
Better
Pensions
Better
Jobs
Social/universal
pension
Formal jobs
subsidies
• Anti-poverty
• Sustainable
• Efficient
• Subsidizing SS
contributions
• Innovating in
channels
• Enforcement ,
information and
financial literacy

18. Better pensions: Anti-poverty pension
 Universal: With age and residence criteria
 Anti poverty: 10%-20% of PIB per capita
(in line with national poverty lines; 2010 poverty 65+: 19.3%)
 Sustainable : Inflation adjusted, with sound fiscal
institutions and funding sources

19. Better jobs: Subsidizing formal employment
Formality could increase from 45% to 63% (10 p.p. higher
than the statu quo scenario)
63%
45%
Source: Bosch, Melguizo and Pagés (2013)
(State subsidy for all workers/firms equivalent to 50% of total social security
contribution of one minimum wage)

20. Better pensions and better jobs would cost
annually on average for LAC 1.5% of GDP

21. The time is now: financial and political economy
challenges can be overcome
 Demography: The region is still young but the window
of opportunity will rapidly close.
 Financing: Pension reform requires an increase in
resources allocated to these policies, preferably from
alternative sources (VAT, commodities).
 Improvement in formal employment and productivity:
Pension reform is central to achieve both.
 Political economy: Formal employment is a central
aspiration of the middle classes.

22. www.universalcoverage.net