Association for Public Policy Analysis & Management

Public pension systems in Latin America have historically suffered from low coverage. This means not only that a relatively small percentage of the labor force makes regular contributions, but also that the percentage of retirees that are eligible for benefits is limited. While many governments in recent years have created non-contributory pensions to extend benefits to elderly citizens that do not qualify under standard rules, these actions have exacerbated the financial stresses on the system and reduced the incentive to make regular contributions. Expanding the percentage of the labor force that makes regular contributions is further complicated by the large share of Latin Americans that have informal jobs, making them ineligible for payroll deductions.

In this paper, we evaluate public pension reforms in nearly a dozen Latin American countries, focusing specifically on policies that have aimed to expand the number of citizens making regular contributions. The reforms that we examine vary widely, ranging from the universal requirement for mandatory contributions, including from those with no regular paycheck, to a system of graduated contributions in which informal workers make minimal payments. Our data on pension benefits and contributions come from a large, longitudinal database of household surveys across Latin America. Our findings have implications not only for the long-term fiscal sustainability of the region, but also for income and wealth inequality in countries of low and medium-level development, particularly among the elderly.