Reforming old-age pension systems in developing countries: lessons from Latin America

ABSTRACT Latin American countries, pioneered by Chile, have launched bold old age pension reforms. While these reforms may address issues of financial sustainability of the pension systems, their most valuable contribution is related to political economy aspects as they avoid perverse redistribution within the system and minimise the risk of government appropriation. On the negative side, Chilean inspired reforms represent a costly approach to reform; they may lead to concentration within the industry and increase risks faced by the individual. They do not eliminate evasion, and in some of its versions, they may introduce problems of adverse selection. More importantly, such reforms do not guarantee that old age will be free of poverty, which is (or should be) the main objective of a pension system.