Reforms in Latin American Pension Markets: Results to 30 Years of Their Crisis in Public Finances - El Colef
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International Relations and Diplomacy, ISSN 2328-2134
June 2014, Vol. 2, No. 7, 425-439 D DAVID PUBLISHING
Reforms in Latin American Pension Markets: Results to 30
Years of Their Crisis in Public Finances
Juana Isabel Vera López
El Colegio de Tamaulipas, Ciudad Victoria, México
In the process of globalization the economies are related in the financial system, in this case in the pension markets.
This study is about the public policy in Latin American pension markets in Bolivia, Chile, Colombia, Costa Rica,
Dominican Republic, El Salvador, México, Peru and Uruguay. In the 80’s decade, the pension markets were in
crisis as a result of this Chile made a reform in their pension system regime. After Chile, other countries also made
their reforms such as Colombia (1993), Peru (1993), Uruguay (1996), Bolivia (1997), México (1997), El Salvador
(1998), Costa Rica (2000) and Dominican Republic (2001). The researchers perform an analysis using the tools in
the comparative politics and comparative methods used in these pension markets with the objective to know the
participation of the state and private sector into these markets; their pension’s law; trends in pension fund assets;
investments; benefits and contributions; and more characteristics. Our data sources are the national pension
authorities, international financial institutions, social and political actors involved in this process of pension
markets’ reforms. This research is important to the field of international relations, public finances at the
international level and the regional development because the pension’s fund wealth or poverty is important to
improve the growth and development of Latin America and the region.
Keywords: pension market, globalization, public finances
Introduction
This article discusses about the reforms in Latin America pension’s markets: The case of study are Bolivia,
Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Mexico, Peru and Uruguay.
The methodology used is comparative method in the public policy of pension markets. The document is
divided into four sections: In the first section, we develop the conceptual theoretical framework, from the basis
of the model of Peter Hall with an institutionalism approach. We use the tools from system theory in relation
with the structure of the right of the social security; In the second section, we talk about a brief history of the
pension systems’ reforms. We begin with an overview of these systems at each country; the analyzed variables
are year of reform, supervisor, chief, currently law, regime, type of system, requirements to obtain the
retirement and its benefits; In the third section, we made a diagnostic of pension systems in relation with
demographic, employment, pension funds and administration factors; and in the fourth section, we reviewed a
cross-regional comparison of pension reforms between Latin American countries and OECD countries.
Juana Isabel Vera López, Ph.D., The Core Academic Basic of Economic Geography and Development, El Colegio de
Tamaulipas.
426 REFORMS IN LATIN AMERICAN PENSION MARKETS
Conceptual Theoretical Framework
In the analysis of public policies, the comparative politics method gives the tools to make approach to the
subject, in this case, the social security systems. This approach is based in the institutionalism because we are
focusing on the review of these pension markets.
The method uses a comparative of public policy in social security systems with a reform at their
regulations. In this article we consider the case of nine Latin American countries: Bolivia, Chile, Colombia,
Costa Rica, El Salvador, Mexico, Peru, Dominican Republic, and Uruguay.
We proceed on the basis of the model of Peter Hall, about the institutions/organizations that they are “las
reglas formales, los procedimientos de cumplimiento y las prácticas operativas que estructuran la relación entre
los individuos en diversas unidades del sistema de gobierno y la economía” (Hall, 1986, p. 19). These rules are
founded in the regulation of pensions.
When we analyze the public policy of social security under an institutionalism approach, with Hall’s
model, we have that “implica tomar en cuenta la forma en que la configuración de intereses e ideas dentro de
un contexto institucional moldea y determina cómo se lleva a cabo la formulación de políticas” (Parsons, 2007,
p. 360).
At Hall’s approach, Wayne establishes that it is based on the institutionalism that gives more importance
to the relationship state-society, this implies that each society makes changes in their regulation due to the
specific situation in their social context and social relationships.
Under this perspective, the systematic legal management of the social security arises out of regulations. A
system is an orderly ensemble of principles, rules, variable or elements that are connected by a structure of
relationships that give a specific unity. The systematic is the form that has or follows a system, in this case, the
social right for obtain social security.
The right for social security is unique and unrepeatable; this requires specific conditions given by the State.
In this legal system, the social security has a sufficient, viable, and sustainable regulatory purpose, for every
one of the paid workers who are protected for this system, and are receiving the social benefits that have by
law.
In accordance with the classification in branches of law, the social security takes part of the social right
(see Table 1).
Table 1
Branches of law
Public right Private right Social right
Constitutional, Agrarian,
Administrative, Civil, Ecological and Enviroment Protection,
Criminal, Commercial and their modalities, Educational,
Procedural, Private International. Relationed with the labour,
Public International. Relationed with the social security.
Source: Almazán, 2004, p. 11.
Campillo (Dávalos, 2010) established that the social rights are related with the conception of social justice
that has been given to the citizens, and the participation of the State is total because it provides the social
benefits for guarantee the individual welfare and the community welfare.
The social security right is a set of rules with the principle of social justice. Krotoschin establishes threeREFORMS IN LATIN AMERICAN PENSION MARKETS 427
categories inside of the source of labor law: guardianship protection needs, the social fact of the professional
organization, and the social fact of the collaboration (Bermudez, 2009).
In relation to “guardianship protection needs”, the worker has rights, and the State has the authority to
establish the minimum to give to every worker, the type of needs are physical, cultural, economic facts which
promote the improvement of their quality of life. The “social fact of the professional organization” covers
training, basic skills and dexterities that the worker must learn for performing its work optimally. Finally, the
“social fact of collaboration”, which refers to the relationship between State and trade unions to guarantee the
welfare of the workers.
We propose the conception of one sustainable social security system (S4). These pension markets need to
promote three areas in their own countries: (1) Regulations; (2) Policy; and (3) Economy.
Figure 1. Sustainable social security system (S4).
Source: Prepared by the author.
In this picture, we can observe one system made up of three subsystems that are related with the
legislation (regulations), economy (resources) and policy (participation of politics and social actors). These
three subsystems have an intersection in the fact of social security, and this is their priority.
The first union between the subsystems of policy and economy gives a guide on how the State directs its
economic system at local, state, regional, national and international levels in their economic growth, and this
economic growth is outlined by the economic policy.
The second union between the subsystems of regulation and economy creates the condition for economic
development in their country in one sense from the bottom-up. The key is that every country must give to the
public administration the capacity to promote an efficient public management with the active participation of
the citizens.428 REFORMS IN LATIN AMERICAN PENSION MARKETS
The last union between the subsystems of regulation and policy creates and important turning point
because it has the capacity to join or disaggregate at the society and this is social inclusion. We need the
existence of social inclusion because it is oriented to promote participative social relationships among citizens.
First, under the principle of individual interest to obtain individual welfare, but later with the aggregation of
individual welfare, we can obtain the social welfare and this is the objective of the government.
The whole is a virtuous circle that turns on the basis of one State’s pyramidal structure: on the top we have
a peak that is determined by the Executive head; below we have the regional, state and local levels, which by
being together in a synergy of power relationships at a political-administrative-economical level, are the engine
that draws at the citizenship under a planning scheme.
A Brief History: Reforms of Pension Systems
In each country, the pension market is really important for its economy. Among the causes of this situation
are the social kind because these economic resources represent the earnings that the workers will obtain when
they finish their labor life.
This pension fund has other reason why to be important for us: the performance of pension fund measured
over the long-term remains relatively attractive for the government and foreign investors. This pension market
is really appreciated for everybody and it represents an important source of saving and investment that allows
stimulating the economic internal market.
Figure 2. Reforms in the pension’s systems.
Source: FIAP.
A crucial point to observe on the global pension markets was the crisis in their public finances because
pensions are a social transfer of funds that is given to the workers when they reach this right, in the most of the
cases when they have completed their labor life. We have observed that the workers need the money at that
time mainly because they are in a special age, over the 60 years, which require medical support like a geriatrist,REFORMS IN LATIN AMERICAN PENSION MARKETS 429
nurses, psychologist and other specialist for them.
International Labor Organization (ILO) defines the concept of “social security”, as a term that involves all
of the citizens’ needs against situations like temporal unemployed, illness, labor accidents, old age, disability
labor, and more. Related to the above, we need to recognize that social security protects the individual and that
it is necessary to promote in the society increased productivity in order to give all people the possibility of
having a pension with the economic resources needed for a full and dignified life.
The countries must ensure the protection and social security coverage. Among the factors that bring about
the crisis in these countries’ public finances is the population ageing which creates a problem diminishing the
rates of replacement for the active workers with respect the retirees and pensioners. This situation generates, for
the majority of the countries, a situation on which the government has to assume the responsibility and cover
the public deficit for the lack of resources on the social security institutions. In facing this condition, we can
observe throughout last three decades a process of reform on the pension’s system at an international level, that
goes from those who only seek to make changes in the parametric level by increasing the age to retiree up to
those that follow a complete renovation transfering the responsibility of this state system to the public sector, or
vice versa.
In Latin America the pension’s system has suffered reforms in eleven countries1 which have reformed
their laws. The first country was Chile, who in 1981 reformed its pension law by privatizing its system; later, in
1993 we have Colombia and Peru; in 1996 Uruguay; in 1997 Bolivia Panama and Mexico; in 1998 El Salvador;
in 1999 Nicaragua; in 2000 Costa Rica; and, finally, in 2001, Dominican Republic.
We begin with a panoramic view of the pension systems in nine countries of Latin America (see Table 2).
The first variable is the year of reform, Chile was the first country to implement the reform in Its law, later
were Peru, Colombia, Uruguay, Bolivia, Mexico, El Salvador, Costa Rica, and Dominican Republic. Other
important fact to note is the authority, the legal person in charge of supervise them; every country has an
organism which function is to regulate the application of their law, and each Institution has its respective head
or in charge chief.
In accordance with the topic, the reform implies the regulatory frame of each country as well as its current
law. In the nine countries of Latin America their pension’s systems are mandatory pension funds with
individual capitalization systems. Most of them have private sector participation. The minimum age to obtain a
pension is 50 years old for the women and 55 years old for the men in Bolivia; and the maximum age is 65
years old in Chile, Costa Rica, and Mexico.
Diagnostic of Pension Systems: Demographic, Employment, Pension Funds and
Administration
This section has been designed with the objective of demonstrate the economic importance of the pension
funds for the Latin American countries. We have presented, in quantitative terms, numbers about the affiliated
population in the pension systems at the recent years.
Related to the above, we presented the unemployment rate by country. This variable is extremely
important in association to one statistic, the Economically Active Population (PEA), because it gives us the
fraction of a population that is in the formal economy or formal sector.
1
This article deals only nine countries: Bolivia, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Mexico, Peru
and Uruguay.Table 2
Pension Systems in Latin America
Dominican
Bolivia Chile Colombia Costa Rica El Salvador Mexico Peru Uruguay
Republic
Year of
1997 1981 1993 2000 2001 1998 1997 1993 1996
reform
Comisión
Autoridad de Nacional del Superintenden Banco Central
Ministerio del Superintendenci Superintendenci Superitendenc
Fiscalización y Control Superintendenci Sistema de cia de Banca, del Uruguay y
Supervisor Trabajo y a Financiera de a de Pensiones ia del Sistema
de Pensiones y Seguros a de Pensiones Ahorro para el Seguros y Banco de
Previsión Social Colombia de Costa Rica Financiero
- APS Retiro AFP Previsión Social
(CONSAR)
Gerardo Daniel
Iván Orlando Rojas Juan Carlos Edgardo Robles Joaquí
n Víctor Carlos Ramírez
Chief Hernández Schydlowsky Mario Bergara
Yonguas Jobet Eluchans Cordero Gerónimo Ramírez Fuentes
Correo Rosenberg
_Ley de los
Sistemas de
Ahorro para el
Ley 1732_Ley de _Decreto No. _Ley Régimen
Retiro (23 de
Pensiones 604, 1 de abril Privado de _Ley No. 16,713
_Ley 87-01 que mayo de 1996).
Ley 3725_Eleva a del 2013, que Pensiones _Decreto No. Seguridad Social
_Ley No. 20,255 crea el Sistema _Ley del Seguro
rango de Ley el reglamenta el Complementaria 927. _Ley del (3 de septiembre
de 2008 Dominicano de Social (21 de _Decreto Ley
DS17305 acceso e inicio s No. 7523. Sistema de de 1995). _Ley
_D.L. No. 3500 Seguridad diciembre de No. 1990.
Currently law Ley 3785_Trabajadores de operación del Ultima Reforma Ahorro para 18,395.
de 1980, Social (9 de 1995). _Ley del _Ley No.
estacionales y Pensión servicio social 18 de Feb. 2000 Pensiones (30 Beneficios
actualizado a mayo de 2001). Instituto de 20530
Mínima complementario _Ley de de Abril de Jubilatorios (24
julio de 2012 _Ley No. Seguridad y
Ley 3791_Ley de la de Beneficios Protección al 2012) de octubre de
188-07 Servicios
Renta Universal de Periódicos Trabajador No. 2008)
Sociales de los
Vejez (BEPS) 7983
Trabajadores del
Estado (31 de
marzo de 2007).
Mandatory pension Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory
Regime
funds pension funds pension funds pension funds pension funds pension funds pension funds pension funds pension funds
Type of
AFP AFP AFP + State AFP + State AFP AFP AFP + State AFP + State AFP + State
system
_a) If the worker has a _For Régimen _At least, 60
sufficient contribution de Prima Media years
_60 years with _60 year for _60 year for
Requirements rate for obtain their _65 years in (RPM), for _30 years of
30 years of men and 55 men and 55
to obtain the elderly pension, in the men and 60 women 55 years _65 years _65 years service with the
contributions at years for years for
reiterement men 55 years and for years in women and for men 60 same period of
the system women women
the women 50 years years contributions,
_b) 58 years, at the rest _In 2014, it for workers thatof cases incresed the age finished in july,
to 62 years for 1st. 2009. For
men and 57 for the rest, the
women requirement is
60 years and 35
years of
contributions
RC: prestación de Vejez, cesantía
vejez, invalidez, por Vejez, invalidez, en edad Vejz,
Vejez, invalidez,
muerte y gastos sobrevivencia, avanzada, invalidez,
sobrevivencia, Vejez,
funerarios; RS: pensión indemnización sobrevivencia, sobrevivencia,
Vejez, invalidez Vejez, invalidez seguro familiar invalidez, Vejez, invalidez
Benefits solidaria de vejez, por sustitutiva, invalidez, vejez vejez
y sobrevivencia y muerte de salud y sobrevivencia y sobrevivencia
muerte y gastos auxilio funerario anticipada, anticipada,
seguro de y muerte
funerarios; RNC: renta y régimen de ayuda por gastos de
riesgos laborales
dignidad y gastos transición desempleo y sepelio
funerarios matrimonio
Source: Compiled by the author.432 REFORMS IN LATIN AMERICAN PENSION MARKETS
Next, we reviewed the field of the pension funds, examining their total investment as well as its
investment categories (State, enterprises, finances, foreign sector, and others).
Another important indicator is the real annual and historic return of pension funds as well as its
administrators.
In 2013, the total population in these nine countries was 247,727,000 inhabitants. In relation with the
number of affiliates in the pension systems, we have that in 2011, it represents the 30.52% of the total number
of affiliates; and, in 2012 it is 31.64%.
Table 3
Number of Affiliates by Country, 2011-2012
Countries Affiliates 2011 % Affiliates 2012 %
Bolivia 1,450,135 1.92 1,551,733 1.98
Chile 9,957,495 11.85 9,268,872 11.82
Colombia 10,039,366 13.28 10,833,256 13.82
Costa Rica 2,054,090 2.72 2,156,706 2.75
El Salvador 2,204,168 2.92 2,359,207 3.01
Mexico 42,512,267 56.24 43,279,952 55.21
Peru 4,928,298 6.52 5,268,457 6.72
Dominican Republic 2,370,468 3.14 2,526,370 3.22
Uruguay 1,079,157 1.43 1,148,528 1.47
Total 75,595,444 100.00 78,393,801 100.00
Source: FIAP.
Table 4
Unemployment rate by Country, 2011-2012
Unemployment rate
Countries % Percentage point change
2011 2012
Bolivia 6.50 7.50 0.15
Chile 7.20 6.40 -0.11
Colombia 9.80 9.60 -0.02
Costa Rica 7.66 10.00 0.31
El Salvador 7.00 6.90 -0.01
Mexico 4.51 4.50 0.00
Peru 7.00 5.60 -0.20
Dominican Republic 14.59 14.30 -0.20
Uruguay 6.30 6.40 0.20
Source: FIAP.
In Latin American countries, the population growth rate in the number of affiliates starting from 2011 to
2012 was 3.7%. In 2012, Mexico had an important number of affiliates reaching to 55.21%. In order of
magnitude, Colombia had the 13.82%, Chile 11.82% and Peru, 6.72%; whereas Uruguay (1.47%) and Bolivia
(1.98%) had the lowest values.
In every country, the employment force is considered as the power of economy; it moves the economic
system and it represents a measure of growth for the countries. One indicator is the unemployment rate that is
considering those who are not working in comparison with the total labor force. For the period 2011-2012, we
can observe that there were changes in these selected Latin American countries there were changes in theREFORMS IN LATIN AMERICAN PENSION MARKETS 433
average percentage of 0.01%. In 2011, the unemployment rate average was 7.84%; and in 2012, this same
indicator was 7.91%.
In 2012, the countries that reflected an improvement on their economy were: Mexico (4.50%), Chile
(6.40%) and Uruguay (6.40%); in contrast were Dominican Republic (14.30%) and Costa Rica (10%).
We can observe in percentage terms the coverage related with affiliates/PEA. This indicator shows the
population that works in the formal sector of economy since the people that works in the informal sector
doesn’t have social security and they aren’t affiliate to the pension system (see Table 5).
Table 5
Coverage Associated With PEA by Country, 2011-2012
Coverage (affiliates/ PEA)
Countries % Percentage point change
2011 2012
Bolivia 34.53 28.17 -6.36
Chile 110.20 113.09 2.89
Colombia 43.59 46.57 3.98
Costa Rica 94.57 97.78 3.22
El Salvador 100.19 107.24 7.05
Mexico 85.75 87.30 1.55
Peru 22.84 24.01 1.17
Dominican Republic 51.72 55.13 3.40
Uruguay 64.54 68.53 3.99
Source: FIAP.
Note: PEA means Economically Active Population.
The average percentage point changed in the period 2011-2012 to 2.21%. This result is really low; it
indicates that the affiliation of new members to these pension systems didn’t have a significant growth.
In 2012, the indicator of coverage by country was high in Chile (113.09%), El Salvador (107.24%), Costa
Rica (97.78%) and Mexico (87.30%), but not in Peru (24.01%) and Bolivia (28.17%).
We can observe that for the countries in Latin America the economic factor is really important since the
pension fund’s investment represents a rate of returns. In 2012, Chile (35.39%) and Mexico (33.60%) were the
economies with more profits, whereas Dominican Republic (0.83%) and Costa Rica (0.97%) (see Table 6).
Table 6
Pension Funds’ Total Investment by Country (Thousands of US$), 2011-2012
Countries 2011 % 2012 %
Bolivia 6,656,796 1.82 7,875,371 1.72
Chile 134,962,260 36.82 162,016,619 35.39
Colombia 53,419,543 14.58 71,205,544 15.56
Costa Rica 3,570,420 0.97 4,435,848 0.97
El Salvador 6,228,019 1.70 6,871,144 1.50
Mexico 120,820,471 32.97 153,805,797 33.60
Peru 30,019,251 8.19 37,595,798 8.21
Dominican Republic 3,061,096 0.84 3,799,541 0.83
Uruguay 7,765,438 2.12 10,145,506 2.22
Total 366,503,294 100.00 457,751,506 100.00
Source: FIAP.
We can observe different investment categories by sector, in this case the statistics includes state sector,434 REFORMS IN LATIN AMERICAN PENSION MARKETS
enterprise sector, finance sector, foreign sector and others (see Table 7).
Table 7
Selected Investment Categories by Country, 2011-2012
State Enterprise Finance Foreign Others
Countries Year % % % %
%
RF RV RF RV RF RV RF RV
Bolivia 2011 38.35 0.00 13.43 0.00 40.58 5.54 0.00 0.00 2.10
2012 49.79 0.00 13.41 0.00 31.11 4.30 0.00 0.00 1.39
Chile 2011 21.38 0.00 8.11 13.94 17.02 0.91 11.55 26.72 0.38
2012 21.50 0.00 9.52 17.94 16.96 0.98 11.79 24.69 -0.38
Colombia 2011 39.79 0.00 2.65 23.97 7.37 8.67 1.23 13.63 3.69
2012 43.42 0.00 2.88 20.05 5.45 11.77 1.05 11.90 3.49
Costa Rica 2011 76.77 0.00 1.40 0.01 10.88 3.62 1.16 1.59 4.57
2012 74.99 0.00 1.88 0.01 12.06 4.98 1.52 0.00 4.56
El Salvador 2011 83.24 0.00 1.40 0.00 8.05 0.00 6.79 0.00 0.53
2012 81.73 0.00 1.06 0.00 9.57 0.00 5.47 0.00 2.17
Mexico 2011 50.08 0.00 20.14 8.79 1.60 0.00 2.16 12.67 4.57
2012 54.46 0.00 19.63 7.70 1.67 0.00 2.73 9.06 4.75
Peru 2011 17.49 0.00 7.01 28.97 11.04 5.75 6.83 22.61 0.30
2012 16.99 0.00 7.69 28.88 11.04 6.47 6.67 0.00 0.32
Dominican
2011 59.94 0.00 2.92 0.00 37.14 0.00 0.00 0.00 0.00
Republic
2012 58.46 0.00 3.17 0.00 38.37 0.00 0.00 0.00 0.00
Uruguay 2011 77.85 0.00 8.34 1.19 2.00 0.01 7.61 0.00 3.00
2012 80.67 0.00 8.16 0.20 1.48 0.00 7.14 0.00 2.36
Source: FIAP.
Note: RF means fixed interest rate and RV means fluctuating interest rate.
In 2012, over 50% investment in the state sector in El Salvador (81.73%), Uruguay (80.67%), Costa Rica
(74.99%), Dominican Republic (58.46%) and Mexico (54.46%). The enterprise sector is representatives in
countries like Bolivia (13.41%/0%), Chile (9.52%/17.94%), Colombia (2.88%/20.05%), Mexico
(19.63%/7.70%) and Peru (7.69%/28.88%). Other important category is the finance sector where countries like
Bolivia (31.11%/4.30%) and Dominican Republic (38.37%/0%) have almost 40% of their resources in this area.
The foreign sector is important in countries like Chile (11.79%/24.69%) and Peru (6.67%/21.96%).
On the previous chart is possible to appreciate the importance of the investment made by the state sector in
the countries. This investment by the public sector protects the pension’s market against any financial
turbulence.
Table 7 shows which of the pension markets are open to the foreign sector, for instance El Salvador,
Uruguay and Costa Rica don’t have this openness, whereas Peru, Mexico and Colombia are open.
Table 8 shows profitability indicators for the pension fund in the selected countries. In real terms, from
2011 to 2012 we can observe positive results on the real annual and historic returns: they had financial profits.
In respect of the real annual return, in 2011, all countries had falls in their gain, only Mexico (2.76%) and
Dominican Republic (4.38%) had some benefits from their profits. In 2012, the real annual returns increased in
all countries, specially in Colombia (13.21%) and Mexico (11.42%).REFORMS IN LATIN AMERICAN PENSION MARKETS 435
90
80
70
60
State
50
Enterprise
40 Finance
Foreign
30
Others
20
10
0
Bolivia Chile Colombia Costa Rica El Salvador Mexico Peru Dominican Uruguay
Republic
-10
Figure 3. Selected investment categories by country, 2012.
Source: Compiled by the author using data from the database of FIAP.
Table 8
Real Annual Return and Real Historic Return of the Funds, 2011-2012
Real annual return Real historic return
Countries % %
2011 2012 2011 2012
Bolivia -2.05 1.80 6.08 5.76
Chile -3.79 4.61 8.80 8.66
Colombia -4.03 13.21 9.27 9.53
Costa Rica 4.12 4.90 8.67 8.48
El Salvador -2.12 4.37 7.67 7.97
Mexico 2.76 411.42 6.34 6.76
Peru -11.27 8.89 8.07 8.11
Dominican Republic 4.38 9.97 2.97 3.65
Uruguay -0.34 9.47 8.92 8.95
Source: FIAP.
Note: Real annual return, it means that the profitability in the last 12 months on every year, in local currency, adjusted by the
inflation (IPC = Consumer Price Index). Real historic return, it means that the profitability recorded from the beginning of the
pension system to every year mentioned, this percentage is expressed in annual terms, in local currency, adjusted by the inflation
(IPC = Consumer Price Index).
In 2012, the real historic return is significant for Colombia (9.53%), Uruguay (8.95%), Chile (8.66%) and
Costa Rica (8.48%), whereas it wasn’t so for Dominican Republic (3.65%) and Bolivia (5.76%).
We can see that Colombia and Uruguay have obtained the higher values with respect to the real annual and
historical returns. By contrast, Bolivia and Chile’s profits had a decrease (see Figure 4).
These selected countries have an average of five pension funds administrator. Bolivia and El Salvador
are the countries with only two administrators, by contrast with Mexico which has 13 administrators (see
Table 9).436 REFORMS IN LATIN AMERICAN PENSION MARKETS
14.00
12.00
10.00
8.00
Real annual return
6.00 Real historic return
4.00
2.00
0.00
Bolivia Chile Colombia Costa Rica El Salvador Mexico Peru Dominican Uruguay
Republic
Figure 4. Real annual return and real historic return by country, 2012.
Source: Compiled by the author using data from the database of FIAP.
Table 9
Pension Funds Administrators, by Country, 2012
Pension funds administrators Number Country
Bolivia(AFP) 2 (1) Futuro de Bolivia; (2) Previsión BBVA.
Chile (AFP) 6 (1) Capital; (2) Cuprum; (3) Habitat; (4) Modelo; (5) Planvital; (6) Provida.
Colombia (AFPC) 6 (1) BBVA Horizonte; (2) Colfondos; (3) ING; (4) Porvenir; (5) Protección; (6) Skandia.
(1) BAC S.J. Pensiones; (2) BCR Pensión; (3) BN-Vital; (4) CCSS; (5) Popular
Costa Rica (OPC) 6
Pensiones; (6) Vida Plena.
El Salvador (AFP) 2 (1) Confía; (2) Crecer.
(1) Afirme Bajío; (2) Azteca; (3) Banamex; (4) Bancomer; (5) Coppel; (6) Inbursa; (7)
Mexico (AFORE) 13 ING; (8) Invercap; (9) Metlife; (10) PensionISSSTE; (11) Principal; (12) Profuturo
GNP; (13) XXI-Banorte
Peru (AFP) 4 (1) Horizonte; (2) Integra; (3) Prima; (4) Profuturo.
Dominican Republic (AFP) 5 (1) Popular; (2) Reservas; (3) Romana; (4) Scotia Crecer; (5) Siembra.
Uruguay (AFAP) 4 (1) Afap Sura; (2) Integración; (3) República; (4) Unión Capital.
Source: Compiled by the author using data from the database of FIAP.
Note: AFP = Administradoras de Fondos de Pensiones; AFPC = Administradoras de Fondos de Pensiones y Cesantías; OPC =
Operadoras de Pensiones Complementarias; AFORE = Administradoras de Fondos para el Retiro; AFAP = Administradoras de
Fondos de Ahorro Previsional.
Cross-Regional Comparison of Pension Reforms: Latin American Countries and OECD
Countries
The regional level is important because it represents the trade integration among countries, for this article,
we have done a comparison of countries in Latin America and OECD, based on the methodology of the OECD
(2004). In our analysis, in these nine countries of Latin America, two countries (Chile and Mexico) belong to
OECD.
In accordance with the OECD (2012, 2013a), the countries from OECD who had made reforms on theirREFORMS IN LATIN AMERICAN PENSION MARKETS 437
pensions system should have a financial deficit in their pension systems. These reforms were aimed to lower
public pensions. In Latin America, this situation is the same.
Both meet up at the changes oriented in parametrical reforms: Increases in pension ages, the introduction
of automatic adjustment mechanisms and the strengthening of work incentives (OECD, 2013b, p. 1).
With regard to the above, the countries in Latin America have a pensionable age of 65; Mexico the same
age applies for men and women; Chile, 65 years old for men and 60 years old for women; Costa Rica applies
the same age for both. Now, in the countries in OECD this trend goes beyond, the 67 years old are now the new
65 years old.
In Italy, men and women will increase their pensionable age to 67 years old by 2021; Spain, 67 years old
by 2027; United Kingdom increased to 68 years old.
One of the main problems is that the affiliated population replacement rate continues to decrease; the total
fertility rate is below the replacement level (in 32 out of 34 OECD countries, with exception of Israel and
Mexico).
In countries of OECD, the life expectancy at age 65 is for women 25.8, and for men 21.9. Chile is over the
average of OECD (26.6 women and 22.7 men), and Mexico is under the average of OECD (24.8 women and
22.3 men).
Japan is the demographically oldest OECD country with 80 years old for men and 86.9 years old for
women. The average age for OECD countries is 77.2 years old for men and 82.7 for women.
In terms of the growth of the pension fund assets by regions, we have that OECD experienced a moderate
growth of USD 4.5 trillion (2008-2011); G20 growths USD 3.9 trillion; Euro area growths USD 0.3 trillion;
Asia growths USD 0.5 trillion; and Latin America growths USD 0.2 trillion (see Figure 5).
0.5
Latin America
0.7
1.3
Asia
1.8
1.7 2008
Euro area
2
2011
13.6
Total G20
17.5
15.6
Total OECD
20.1
0 5 10 15 20 25
Figure 5. Pension fund assets by selected regions (USD trillion).
Source: OECD, 2012.
The weighted average asset-to-GDP ratio is 72.4%, three countries above this size are Netherlands
(138.2%), Iceland (128.7%) and Switzerland (110.8%). In accordance with OECD, a mature pension fund
market is the country that had assets-to-GDP ratios above 20%, they are only thirteen out of thirty three438 REFORMS IN LATIN AMERICAN PENSION MARKETS
countries: Netherlands (138.2%), Iceland (128.7%), Switzerland (110.8%), Australia (92.8%), United Kingdom
(88.2%), Finland (75%), United States (70.5%), Canada (63.7%), Chile (58.5%), Denmark (49.7%), Israel
(49.4%), Ireland (46.2%), Japan (25.1%). Mexico had 12.9% (see Figure 6).
Greece 0
France 0.2
Luxembourg 1.9
Turkey 2.2
Slovenia 2.9
Hungary 3.8
Belgium 4.2
Korea 4.5
Italy 4.9
Austria 4.9
Estonia 5.3
Germany 5.5
Czech Republic 6.5
Norway 7.4
Portugal 7.7
Spain 7.8
Slovak Republic 8.4
Mexico 12.9
Poland 15
New Zealand 15.8
Japan 25.1
Simple average 33.9
Ireland 46.2
Israel 49.4
Denmark 49.7
Chile 58.5
Canada 63.7
United States 70.5
Weighted average 72.4
Finland 75
United Kingdom 88.2
Australia 92.8
Switzerland 110.8
Iceland 128.7
Netherlands 138.2
0 20 40 60 80 100 120 140 160
Figure 6. Importance of pension funds relative to the size of the economy in OECD countries, 2011 (as a percentage of GDP).
Source: OECD.
Conclusions
Currently, the reforms of pension markets are already happening around the world. This phenomenon is
current as in regions like Latin America, Asia, Africa, Euro area, and others in the world. In this process of the
demographic transition the primary issue must be the population ageing. In this connection, we had that the
economies observe an increase of the unemployment rates and an increase in the population in informal sector.
In addition, the pension systems have more participation of private sector and a minor proportion of the State’s
participation.
Many countries, including Mexico, they had to create universal pension for the population that was
without social security. Our countries should return at the search of social welfare, as it is proposed by the
sustainable social security system (see Figure 1).
The citizens trust in the government, in their regulations, their guide in the economic, financial and
international markets. Social security is a right for the citizens that worked their whole life in formal economy.
A marked failure is when the citizen doesn’t search his individual welfare and it doesn’t become a social
welfare and here is when we have social disparities in our society. Any market needs the citizen’s acquisitive
power reflected on the people’s incomes.
In the countries of Latin America, we observe that the reforms of pension systems continue because theirREFORMS IN LATIN AMERICAN PENSION MARKETS 439
regulations are focus in parametrical changes like increasing the age, contributions, and others. But it’s
necessary to promote efficient planning in our economies.
After 30 years of pension’s system reforms we still have a lot of work to do, there are still many
unfinished tasks.
The region of Latin America needs to observe the trends of the OECD’s countries because it might be our
future scenery and we must be prepared to face this future landscape.
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