Pension Regimes in Latin American Emerging Countries: Do and Can Individual Capitalization Schemes and PAYG Systems Coexist?
DOI:
https://doi.org/10.55444/2451.7321.2013.v51.n1.11879Keywords:
individual capitalization, PAYG, non contributory regimes, coverage, tax compliance, financial sustainabilityAbstract
Experts have been pointing out that, although fully funded pension schemes implemented by several Latin American countries gathered political rejection and experienced important setbacks, they were resorted to in response to the problems faced in the eighties and the nineties by unfunded regimes. In this connection, the idea is that both individual capitalization and PAYG systems can and should coexist provided that efficacy in ensuring expected levels of coverage, equity and efficiency and in guaranteeing also long run financial sustainability be appropriately reached. Nevertheless, several preconditions appear necessary for the preceding scenario to be possible: coverage and tax compliance need to be expanded in both regimes particularly to include the self employed workers, individual capitalization needs be improved and turned more attractive by reducing administrative and commercial costs and by offering a more varied portfolio composition concerning instruments and risk levels. Finally, despite that competition between regimes, by permitting affiliates to switch from one to another, promotes efficiency, non contributory pensions will still be necessary, on grounds of distributional, solidarity and equity goals.
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