Pension system reform in Latin America

When reforming pension systems, the arguments used must be carefully studied, since changes may involve substantial economic, social and political costs. The reforms which are being carried out in the region reflect this dilemma and are the result of various compromises affecting the new system as regards: i) the degree to which the benefits provided by the system and the administration of its reserve funds are isolated from the political process; ii) the necessary regulation and supervision of the markets with which the system interacts in order to effect the financial intermediation of its funds; iii) the appropriate combination of fiscal resources and pension fund surpluses to be used to pay the debt owed to pensioners of the former system and the commitments in terms of minimum pensions; iv) the provision of insurance schemes against disability and survival contingencies and possible fluctuations in the financial market, as well as covering the lifetime annuity option; v) the need to supply information so that members can take free and informed individual decisions, and vi) ensuring a capital market with a suitable combination of financial instruments to protect the system against inflation risks.