Remarks by Angel Gurría
20 April 2015
(As prepared for delivery)
President Moreno, Ministers and Deputy Ministers, Ladies and Gentlemen,
It is a pleasure to be here to launch the first edition of Pensions at a Glance: Latin America and the Caribbean. I want to thank Luis Alberto Moreno and Jim Yong Kim for the collaboration and commitment of the IDB and the World Bank in the preparation of this study, which is part of the Pensions at a Glance series of the OECD that now, with this edition, covers 79 countries. The central objective of these studies is to provide a series of indicators for the design of pension systems, using a standard methodology that will allow governments to compare and improve their policies and frameworks in this field.
In Latin America and the Caribbean (LAC), pension systems are facing great challenges, both social and economic, with respect to their coverage and their sustainability.
As is the case in OECD countries, many pension systems in Latin America and the Caribbean tie workers' contributions closely to their future pension benefits, which means that retirement incomes depend to a large extent on participation in the formal labour market. This fact explains why pension policy outcomes differ among the two groups of countries.
While the majority of OECD countries have relatively small informal sectors, allowing their pension systems to cover most retirees, in the LAC region pension systems still cater to the relatively few formal workers who can contribute enough to receive an adequate pension. Only one in four persons over age 65 receives a retirement pension in Colombia and Mexico, and one in three in Venezuela.
This is not to say that OECD countries are not facing difficulties in these fields. In fact, in our member countries there are more and more workers who have unstable careers, who move in and out of self-employment, or who work part-time or in temporary jobs. This means that they do not contribute regularly or in sufficient amounts to pension or social security systems. In addition, women still have shorter contribution careers in most OECD countries, and thus face a higher risk of old-age poverty than men.
OECD and LAC countries alike are looking for the best way to guarantee adequate pensions for all. Safety nets for the elderly have an important role to play here, but it is clear that the biggest challenge lies in the labour markets. This is where we must focus our attention in order to promote participation, and also to enable workers not only to earn enough for themselves and their families during their working lives but also to accumulate sufficient pension entitlements for their retirement. It is crucial, then, to address the multiple factors that drive informal employment and low pay. The OECD is working with its member countries and with some of the countries of LAC to help them address these challenges.
Beyond the issues of coverage, pension systems must adjust to demographic trends. The population in LAC is still much younger than in most OECD countries, with more than eight workers per retiree, compared to fewer than four on average in the OECD. Yet the Latin American population is ageing rapidly. In fact, it is expected that by 2060 the number of workers for every retiree in the region will have dropped to 2.5, compared to 1.9 in the OECD.
To reduce the financial pressure from population ageing and make pension systems more sustainable, many OECD countries are moving towards defined-contribution solutions, both funded and unfunded, and indeed Latin American countries such as Chile and Mexico have been pioneers in this aspect of pension reform.
Yet such moves are not without their difficulties. The costs of transition from one model to another have often turned out to be higher than expected. In Poland, the move to a multi-pillar system increased the explicit public debt by an estimated 17.5% of GDP. At the same time, net returns in the privately managed systems of individual accounts proved disappointing due to low interest rates and high administrative fees. This circumstance has led some countries of Central Europe to backtrack on the reforms undertaken, and to suspend private pension systems and rely once again on public pay-as-you-go arrangements.
OECD countries can learn from Latin American efforts to fine-tune the management, regulation and supervision of private retirement savings to make such systems more efficient and less costly. At the same time, OECD countries can share with LAC their best practices and their experience in strengthening pension systems.
OECD member countries apply a wide variety of models for non-contributory pensions, ranging from means-tested old-age benefits in Australia to universal pensions in the Netherlands and New Zealand. Each model has its advantages and drawbacks, and can provide valuable insights to countries in the LAC region.
Allow me to conclude with a couple of recommendations for making the most of this study and of the entire "Pensions at a Glance" series of the OECD. First, the studies do not argue for any specific design or model for reforming the pension system in any country of the region. The purpose is rather to inform the debate surrounding pension systems by providing comparable data that can serve as a benchmark for such debate. Second, when consulting the study and drawing conclusions, it is very important to bear in mind the methodology used to compare pensions, as that methodology uses simulations based on assumptions as to the precise moment at which an employee began to work.
I have offered here only a few glimpses of the broad and rich tableau of calibrations and considerations that you will find in this study. I invite you to look it over carefully. It is probably the highest-definition photograph available of pension systems in Latin America and the Caribbean. We hope that it will be very useful.
President Moreno, Ministers and Deputy Ministers, Ladies and Gentlemen:
The pension system reflects the quality of our economic systems, our governments, and our social covenants. The countries of Latin America have made progress in recent years in improving their pension systems, but they are still facing great challenges in this regard. With this addition of Pensions at a Glance we have created a reference tool to facilitate the sharing of experience and co-operation among Latin American countries, and also with the United States and with the millions of Latinos who live and work in this country.
The OECD stands ready to continue working with the IDB, the World Bank and all of you to improve the current and future benefits for retirees in the region and to promote better pension policies for better lives.
Thank you very much.