The introduction of private defined contribution pension systems in many Latin American countries during recent decades has been successful in drastically reducing the fiscal burden of caring for older adults. As demographic shifts related to rising life expectancies and lower birth rates continue to put pressure on traditional pay as you go (PAYG) systems around the world, transferring the financial responsibility from state to individual increasingly appears to have been a highly pragmatic move.
However, in Latin America these schemes have struggled to resolve longstanding structural challenges including boosting coverage of the formal pension system and improving the level of pensions received by retirees.
Recent pension reform among Latin America's Pacific Alliance nations have made significant advances in boosting competition between fund managers and reducing commissions for members, as well as improving investment diversification. However, further structural reforms to tackle coverage and replacement rate issues remain a pending challenge. Although the exact nature and time frame for such changes is still unclear, signs from all four countries suggest that new measures could be introduced in the coming years.
This report looks at the current situation of the pension systems in Chile, Peru, Colombia and Mexico, and considers the possible direction of future reforms.