El Salvador's congress has introduced a minimum retirement age of 60 for men and 55 for women, Spanish news service EFE reported.
Previously, workers could retire after 30 years of service independent of their age.
"With this reform El Salvador will cease to be the only country in the world that allows early retirement," deputy Julio Gomero for the right wing ARENA party was quoted as saying. "We were financing a situation that was very expensive."
The government will reportedly save US$99.8mn over the next five years thanks to the reform.
While most private sector workers contribute to private pension funds there are still people covered by state social security institutions ISSS and INDEP.