Pension reform in Europe in the 1990s: Lessons for Latin America

Reform of European pension systems started from a situation in which income differentials were fairly small, partly owing to the high coverage of the system. In Latin America, informal working and inadequate coverage are still problems, and income inequality is high. Even so, both regions are moving towards individual account systems with strong links between contributions and benefits. Latin America has introduced compulsory financial accounts. Europe is moving towards lifetime pay-as-you-go accounts. Some European countries have set up notional defined contribution systems. In Latin America, the need to provide guarantees for the poor and the specific problem of women’s poverty will be at the forefront as long as coverage remains inadequate. Other important issues are the minimum retirement age and the moral hazard associated with systems that encourage or support early retirement. Where these points and the problems of poverty are concerned, the European experience repays careful study.