This chapter reviews Paraguay’s main contributory pension systems, focusing on financial sustainability and reform priorities. It outlines the fragmented structure of the pension system and assesses the mandatory pension scheme for private sector workers administered by the IPS, with particular attention to coverage, benefit adequacy and long-term financial sustainability. The chapter also examines the fiscal pressures facing the Caja Fiscal, which manages public sector pensions, and discusses policy options to strengthen its solvency. Note that this chapter was drafted prior to the proposal and approval of the reform to the Caja Fiscal enacted through Law 7633/26.
Financing Social Protection in Paraguay
The Role of General Revenues and Social Security Contributions
Abstract
Contributory pension coverage in Paraguay remains low, with only about 24% of the workforce contributing to a pension scheme. Coverage is strongly correlated with income levels (Figure 3.1). Only 3% of workers in the lowest income quintile contribute to a pension fund, and even among the highest income quintile the share remains low at 40%, compared with other LAC countries. The Instituto de Previsión Social (IPS) has the largest number of contributors, followed by the Caja Fiscal. The persistently high level of labour market informality is a key structural barrier to expanding contributory pension coverage, particularly among lower-income groups (see Chapter 6).
Notes: Other Caja’s include the Caja Bancaria, the Caja Municipal and Private Cajas. The EPHC does not include the departments of Boquerón and Alto Paraguay, indigenous communities, collective housing, and live-in domestic workers.
Source: OECD based on EPHC (2024[1]).
Paraguay’s pension system is characterised by a fragmented structure, consisting of eight public pension funds alongside a range of private voluntary pension funds. Most public pension funds in Paraguay are defined-benefit based schemes operating on a pay-as-you-go basis.1 Among these, the IPS and the Caja Fiscal represent the two principal public contributory schemes. The IPS provides pensions to private sector employees and covers approximately 74% of all individuals contributing to public pension schemes, and it also provides pensions to 47% of all beneficiaries receiving a contributory pension. The Caja Fiscal covers civil servants and is the second largest pension fund, covering 24% of contributors and 46% of contributory pension recipients (see Figure 3.2). In addition to these two main schemes, Paraguay has six smaller public pension funds that serve specific companies or professional groups (see Figure 3.2): the Caja ANDE serves employees of the national electricity company Administración Nacional de Electricidad (ANDE), who also contribute to the IPS health and pension funds; the Caja Paraguaya de Jubilaciones y Pensiones del Personal de la Itaipú Binacional (CAJUBI) is for workers at the Itaipú hydroelectric dam that contribute to the IPS; the Caja Bancaria covers workers in the banking sector; the Caja Municipal is for municipal employees; the Caja Ferroviaria serves workers of the public railway; and the Caja Parlamentaria serves members of parliament. The private pension funds mainly consist of mutual funds and cooperatives, operating on a voluntary defined-contribution basis.
Source: MTESS (2024[2]), Boletín Estadístico de Seguridad Social 2024.
Pension contribution rates and benefit parameters differ across the eight public pension funds, giving rise to significant disparities among contributors. Table 3.1 provides a comparative overview of key parameters across the different pension schemes. For the Caja Fiscal, the sub-scheme for civil servants is presented, while information on the remaining sub-cajas is provided separately in Table 3.2. Contribution rates range from 7.5% for ANDE officials under the IPS to 28% for contributors to the Caja Bancaria. Other core parameters, including retirement age, minimum contribution years and replacement rates, also differ substantially across the different pension funds (Figure 3.3).
Note: Retirement age, minimum contribution years and replacement rates refer to ordinary pension schemes, and parameters might differ for extraordinary pensions or invalidity pensioners. *The Caja Fiscal has several other sub-cajas with varying pension parameters (see Table 3.2 for more details). The Caja ANDE and Caja CAJUBI are complementary pension funds for workers of the ANDE and Itaipú companies. Officials, who have transferred from ANDE to Yacyreta, are eligible to contribute to the IPS pension fund at the reduced rate of 7.5%.
Source: MEF, IPS (2025[3]).
Note: The official retirement age for the pension funds is indicated in parentheses in the legend. The IPS, Caja Bancaria and Caja Ferroviaria all reach replacement rates of 100%, but are plotted slightly displaced for better visualisation. Similarly, the Caja CAJUBI and the Caja Parlamentaria have both replacement rates of 80%.
Source: MEF (2025).
The reference wage periods applied to calculate pension benefits in Paraguay’s public pension schemes are short by international standards. Across the eight public pension funds, including the Caja Fiscal, pension entitlements are generally calculated on the basis of earnings over the final 2 to 10 years of employment. In contrast, most OECD countries calculate pension benefits using lifetime earnings, which enhances the equity and sustainability of the system (OECD, 2023[4]). Only a few OECD countries base pension calculations on partial career earnings, typically spanning 20 to 40 years, with Colombia being a notable exception, using a 10-year reference period (Figure 3.4). To improve financial sustainability and align with international practices, Paraguay could consider extending the reference wage period in the Caja Fiscal and other public schemes to at least 10 years, which is aligned with the IPS reform that is being implemented.
Note: All OECD countries not shown in the figure calculate pension benefits based on the average wage over the entire career.
Source: Adapted from OECD (2023[4]) with information added on Paraguay.
Differences in the design of pension parameters create horizontal inequities among contributors, as individuals with similar contribution histories may receive markedly different pension benefits depending on the fund to which they contributed. According to a study by (Bai and Zelko, 2023[5]), contributors to the Caja Fiscal experience highly uneven returns on their pension contributions: teachers, judges, military personnel, and police officers receive pension benefits exceeding four times their total contributions, whereas civil servants in public administration receive returns below 2.5 times their contributions. In contrast, IPS pensioners receive benefits ranging from 2.6 to 3.8 times their contributions. The high pension returns put the financial sustainability of the funds at risk. While replacement rates are generally high, individuals who do not meet the minimum contribution thresholds are excluded from receiving a pension. Such design features may reduce incentives for sustained participation among workers with fragmented contribution histories and deter older individuals from initiating contributions.
In December 2023, the Paraguayan Congress enacted legislation establishing the Superintendency of retirement and pensions (Superintendencia de Jubilaciones y Pensiones) (Apella and Montt, 2024[6]). The Superintendency provides an institutional framework for supervising and supporting the management of the various public pension funds. This establishment of the Superintendency has been a necessary step to improve transparency and accountability.
Since the enactment of Law No. 3856 in 2009, contribution periods may be aggregated across pension funds, enabling individuals with fragmented contribution histories to qualify for a pension even if they do not meet the minimum requirements within a single fund. Thus, a worker who has contributed to more than one pension fund and who, upon reaching the age of 65, does not individually meet the requirements to qualify for a pension from any of them, can add up the years of contributions made to each fund. Each institution recognises and pays a proportional part of the benefit according to the contribution period and the calculation rules in force in its regime. Notably, there is no transfer of funds, as each fund settles the pension separately. This reform represents a step toward greater portability and equity within the pension system. However, this law presents some regulatory inconsistencies, especially in relation to the IPS Proportional Retirement Law of 2011. For example, a person with 16 years of contributions to the IPS and 10 years to the Caja Fiscal cannot accumulate these contribution periods to qualify for a joint benefit, given that in the IPS, 15 years of contributions within its own regime are sufficient to qualify for the IPS benefit. In practice, this limits the effective portability of accrued rights across pension funds and prevents the full recognition of contribution histories spanning multiple regimes, underscoring the need for greater harmonisation between the two regulatory frameworks. With regard to the refund or withdrawal of contributions, the IPS does not allow fund withdrawals, whereas the other pension funds offer refund mechanisms under certain conditions. In the case of the Caja Fiscal, the law allows contributors to withdraw 90% of their accumulated contributions if they do not meet the eligibility criteria for a pension.
Coverage of the IPS pension fund could be further extended
The IPS administers pensions and health insurance for private-sector employees under Paraguay’s general mandatory social security regime, which was established in the 1950s. Officials working in several state-owned companies in Paraguay are also covered by the IPS (e.g. workers of the national electricity company ANDE, the binational hydroelectric companies ITAIPU and Yacyretá, oil, communications and aeronautics companies), but contribution rates vary across professional groups (Table 3.1). The workers of the ANDE company contribute to both the IPS pension regime (at reduced rates) and their respective company-specific pension fund (Caja ANDE). Since 2010, the IPS has revised pension schemes to offer greater flexibility for specific professional groups such as artists (since 2010), private teachers (since 2011), independent workers (since 2013), domestic workers (since 2015), owners of microenterprises (since 2016), part-time workers (since 2019) and workers in Mipymes (2025).
Coverage of the IPS pension fund among private-sector workers remains limited. In 2024, about 39% of salaried private sector workers in Paraguay contribute to a pension fund (EPHC, 2024[1]). Limited pension coverage among employees reflects a lack of enforcement and the relatively high contribution burden faced by low-productivity firms and workers. The low percentage of workers that contribute to a pension fund is also partly due to very low coverage among independent workers for whom social security is voluntary. General reasons for the low levels of pension contribution coverage in Paraguay include low productivity, low wages, lack of a subjective perception of rights and obligations among workers, inaccurate information about the benefits of social insurance and its consequent underestimation (Montt, Setrini and Arce, 2021[7]). Further analysis on the tax wedge and hurdles to formalisation is included in Chapter 6.
Social security contribution rates in Paraguay are broadly in line with regional averages. In the LAC region, contribution rates including for pensions tend to be relatively high (Figure 3.5). Under Paraguay’s general social security regime of the IPS, private sector employees contribute 9% of gross earnings, while employers contribute 16.5%, resulting in a combined rate of 25.5%, thereof 12.5% are allocated to the IPS pension fund. This places Paraguay slightly below the regional average. While statutory contribution rates are not particularly high, they represent a significant burden for low-income workers, partly because contributions are calculated on at least the minimum wage, with only few exceptions (see Chapter 6).
Social security contributions as a percent of gross earnings, 2025
Note: The rates for mandatory social security contributions for private sector employees are displayed, showing the highest rate in cases where rates differ depending on the sector or income level. The rates displayed include both pension and health contribution components. For Paraguay, the figure reflects the 25.5% general contribution rate applied to private‑sector employees affiliated with the IPS.
Source: IBFD Country Tax Guides (IBFD, 2025[8]).
The IPS offers a voluntary pension scheme for independent workers. However, uptake remains very limited, with only 967 contributors in 2023 (IPS, 2025[3]). Contributions are set at 13% of the declared income, where the minimum wage serves as the minimum contribution base, subject to a limited number of exceptions (see Chapter 6). The benefit regulations are the same as under the IPS general regime: a full pension is granted at age 60 upon completion of 25 years of contributions, while a partial pension is available at the age of 65 with a minimum of 15 contribution years. Independent workers with fewer than 15 contribution years receive no pension benefit.
For independent workers with sufficient financial capacity, participation in a pension scheme could be made mandatory. According to the 2024 EPHC survey, approximately three quarters of the independent workers earn less than the minimum wage and lack contributory capacity, whereas about one quarter of the independent workers have capacity to contribute (see Chapter 6). Higher-income independent workers often rely on alternative retirement strategies, such as private savings schemes or real estate investment, rather than participating in the contributory pension scheme. A potential reform option would be to make pension contributions mandatory for higher‑income independent workers, while allowing them to choose between contributing to the IPS or to a private pension fund. A similar approach has been adopted in Peru, where a reform scheduled to take effect in 2028 will require independent workers to contribute to either a public or private pension scheme (OECD, 2025[9]). To further enhance the attractiveness of the IPS for independent workers, integrating health insurance into the scheme could be considered, although this would require adjustments to the financing of dependants as discussed in Chapter 2.
Pension benefit adequacy is high, but only for those who qualify for a pension
Contribution density among IPS contributors is low, amounting to 28% on average between 2000 and 2020 (Bai and Zelko, 2022[10]). Half of the workers have a contribution density of less than 20% and one-third below 10%, indicating that pension contributions have been made for only a limited share of working life. These percentages are lower than in comparable Latin American countries (e.g. Argentina ~35%, Brasil ~50%, Ecuador ~50%, Uruguay ~50%) (Álvarez et al., 2020[11]). A low contribution density reduces the likelihood of accumulating sufficient contribution histories to qualify for a contributory pension. As a result, a large share of contributors does not meet eligibility requirements, underscoring the continued importance of Paraguay’s non‑contributory social pension system (see Chapter 4).
The low contribution density implies that most contributors will not receive a pension when reaching retirement age. At the statutory retirement age (65), 57.3% of current IPS contributors are projected not to meet the minimum 15-year contribution requirement. One-third of the former contributors receive a proportional pension, and only 9% qualify for a full pension (Bai and Zelko, 2022[10]). Gender disparities persist in pension receipt, with men accounting for 58% of IPS pension beneficiaries, compared to 42% for women. In addition, pension benefits remain disproportionately concentrated among higher‑income groups.
To strengthen contribution incentives and avoid penalising workers who do not meet the minimum contribution period, the introduction of partial pensions for contributors with shorter contribution histories could be considered. In the absence of such a mechanism, many workers – anticipating that they are unlikely to meet the minimum contribution requirement – face limited incentives to contribute. At the same time, Paraguay’s current social pension is paid only to older adults who receive no contributory pension. To prevent the emergence of retirees receiving very low contributory pensions while remaining ineligible for social pension support, consideration could be given to introducing a tapered pension arrangement. Under such a system, social pension benefits would be gradually withdrawn as contributory pension entitlements increase, ensuring that total retirement income remains above the Adulto Mayor social pension and thereby strengthening incentives to contribute. The administrative implementation of such a system would be relatively straightforward, as pension income from contributory schemes is fully recorded by pension funds. An additional advantage of this approach relates to fiscal sustainability. Allowing for partial pensions, in combination with a tapered social pension top-up, would imply that individuals with some contributory history receive lower social pension supplements, helping to contain social pension costs over the long term. By strengthening incentives to contribute, such a reform could also broaden the contribution base and support the financial sustainability of the pension system, particularly if accompanied by a reduction in replacement rates for full contributory pensions. The Chilean experience with tapered non-contributory pensions combined with contributory benefits is discussed in Box 3.1. Unlike Chile’s Aporte Previsional Solidario (APS), the proposed scheme for Paraguay would ensure that combined benefits remain above the Adulto Mayor social pension. However, the social pension would gradually decrease as the contributory pension increases, following a similar tapering approach as applied in Chile.
Tapered non-contributory pensions imply that the benefit is gradually reduced as the individual’s contributory pension increases. This design avoids the large “cliff effects” seen in simple minimum-guarantee schemes, where receiving one extra unit of contributory pension can eliminate the entire state top-up. Such “cliffs” create a 100% implicit tax on extra contributions and discourage formal work and saving. A taper system replaces this with a lower implicit tax, improves incentives to contribute, and spreads fiscal resources more efficiently toward those with the lowest pensions.
Another advantage is that taper systems are straightforward to administer: the government only requires verified pension income records from the contributory system. Since these records exist for all formal-sector retirees, the state can calculate the exact top-up automatically, with little room for errors or leakage.
In 2008, Chile introduced the Aporte Previsional Solidario (APS) to provide support to those individuals with low contributory pension benefits. This benefit was granted to individuals aged 65 and more living in vulnerable households and covered the difference between the pension obtained though the individual savings account contributory scheme and the minimum non-contributory pension (Pensión Básica Solidaria). APS was replaced in 2022 by the introduction of a more generous universal social pension (Pensión Garantizada Universal) which follows the same principle of integrating contributory and non-contributory benefits.
Source: Chile Atiende (2025), Aporte Previsional Solidario de Vejez (APSV), https://www.chileatiende.gob.cl/fichas/5190-aporte-previsional-solidario-de-vejez-apsv; Chile Atiende (2025), Pensión Garantizada Universal (PGU), https://www.chileatiende.gob.cl/fichas/102077-pension-garantizada-universal-pgu.
Paraguay could also consider introducing voluntary, subsidised pension contributions for individuals who lose formal employment, for a limited period. For example, Thailand operates a scheme under Article 39 of the Thai Social Security Act that allows individuals to continue making voluntary contributions for up to six months following the loss of formal employment (OECD, 2025[12]).
The current design of the IPS pension scheme provides high replacement rates for individuals who qualify for a pension. As mentioned earlier, individuals qualifying for a full pension receive benefits worth 2.6–3.8 times their contributions (Bai and Zelko, 2023[5]). This is because the replacement rate reaches 100% after 25 years of contributions for retirement at age 60, capped at 10 times the minimum wage. In addition to providing overly generous benefits, this structure may weaken incentives for continued contributions beyond 25 years. Early retirement is possible at age 55 if 30 contribution years have been completed, at a lower replacement rate (80% plus 4 percentage points for every additional year). A proportional pension is paid out to contributors aged 65 or above with minimum 15 contribution years offering a replacement rate of 60% plus 4 percentage points for every additional year.
Paraguay’s replacement rates are high by international comparison. In OECD countries, net pension replacement rates from mandatory schemes after a full career starting at age 22 in 2024 are 63% of net wages for the average earner, ranging from below 40% in Estonia, Ireland, Korea and Lithuania to over 95% in the Netherlands and Türkiye (OECD, 2025[13]). Net replacement rates for low-income earners tend to be slightly higher in most OECD countries due to redistributive features within pension systems. Paraguay may consider aligning its pension system more closely with international benchmarks. Reducing the overly generous replacement rates would provide fiscal space to provide partial pensions to those contributing less than 15 years, which can incentivise formalisation.
The financial stability of the IPS pension fund could be further challenged by an ageing population
At 60 years, Paraguay’s statutory retirement age is below the OECD average, reflecting in part the country’s lower life expectancy. Life expectancy at age 65 in Paraguay is 18 years for women and 15 years for men in 2025, projected to rise to 20 and 16 years respectively by 2050 (UN, 2024[14]). In comparison, OECD countries project a remaining life expectancy at age 65 of approximately 23 years, on average, by 2050-2055 (OECD, 2023[4]). The average retirement age in OECD countries is currently 64 years, with many governments implementing reforms to increase it further.
Paraguay is currently at an early stage of its demographic transition, benefiting from a demographic dividend (OECD, forthcoming[15]). Over the next 15 years, the working-age population is projected to continue expanding, while the youth population is expected to begin declining. These demographic developments are reflected in dependency ratios (Figure 3.6). The old-age dependency ratio is projected to increase from 10 individuals aged 65 years and over per 100 persons aged 15-64 in 2025 to 19 individuals by 2050. At the same time, the total dependency ratio is expected to decline until 2045 driven by a falling child dependency ratio. These demographic trends highlight the importance of implementing timely reforms to the IPS pension fund to ensure long-term financial sustainability.
Note: The dependency ratios are measured in persons per hundred persons aged 15-64 years.
Source: UN (2024[14]) World Population Prospects 2024.
IPS expenditure on pension benefits increased from 0.77% of GDP in 2014 to 1.32% in 2023. Pension spending as a share of GDP has been rising broadly in line with the growth in the number of beneficiaries (Figure 3.7). While population ageing does not yet constitute a major fiscal pressure, it is expected to pose increasing challenges to the sustainability of the pay-as-you-go system over the medium to long term.
Source: IPS (2025[3]), Anuario Estadístico IPS 2023.
The IPS pension fund has recorded a deficit since 2020 and needs further structural reforms over the medium to long term. The current pension system relies on substantial internal cross-financing from contributors who do not qualify for a pension – because they have not accumulated a minimum of 15 years of contributions – which helps offset the cost of high replacement rates for eligible beneficiaries. In the absence of this cross-financing, the pay-as-you-go system would face even more significant financial pressures. Since 2020, the IPS pension fund has operated with persistent financial unbalances, which reached 0.14% of GDP in 2024. In recent years, returns generated by the reserve fund have been used to finance current deficits of the IPS pension fund. In 2024, 34% of the reserve fund’s total income was allocated to supplement the financing of current pensions, up from 20% in 2020 (Figure 3.8). Reserve fund returns should primarily be reinvested to finance future pension liabilities, particularly given that these liabilities are expected to grow in line with inflation and real wage increases. The recent parametric reform extending the reference wage period used to calculate pension benefits is expected to improve the fund’s financial sustainability. However, this measure alone is unlikely to be sufficient to restore long‑term fiscal balance. According to a preliminary actuarial assessment by the IPS, under current system parameters the pension fund deficit is projected to widen over the coming decades, with expenditures expected to reach around 130% of revenues by 2060. While returns on the reserve fund are projected to cover current pension payments until around 2036, financing beyond that point would require drawing down the fund’s capital.
Note: The line graph represents the share of the return on the reserve fund used to finance the deficit of the IPS pension fund.
Source: Adapted from IPS (2026[16]).
Several provisions contribute to the financial challenges faced by the IPS Fund
The additional annual benefit increases financial pressures on the IPS pension fund. Since 1995, pensioners have been granted an additional annual benefit equivalent to one month of their pension without any associated financing sources. According to IPS estimates, an increase in contribution rates by 1.25 percentage point would be required to finance this additional benefit without using income from the reserve fund for pension payments until 2036 (IPS, 2026[16]).
Paraguay provides for a minimum pension. Several factors explain why some workers reach retirement with such low declared earnings. First, wages have not been adjusted for inflation when calculating the reference wage. Second, the years preceding retirement, some workers may have contributed on a base below the statutory minimum wage for various reasons. Some pensioners have no or little declared income in the years used as reference period for the calculation of the benefit (four years in January 2026 but increasing to 10 years by 2032). Third, certain occupational groups (e.g. agricultural workers) contribute based on minimum bases below the statutory minimum wage. Finally, the benefit for recipients of survivor pensions or partial pensions often yields very low amounts. As a result, the IPS is required to supplement their pension benefits up to the legal minimum level. Under current legislation (Law No. 4426/2011 and a resolution from 2024), the minimum pension benefit (Haber Mínimo Jubilatorio) is set at 33% of the minimum wage.
A temporary increase in the minimum pension benefit resulted in significant costs for the IPS. Between 2020 and 2024, temporary measures substantially raised the minimum pension level: in 2020, eligible retirees and pensioners were guaranteed benefits equivalent to 50% of the minimum wage, and from 2021 to 2024, this threshold increased to 75% for retirees while minimum pension benefits for survivors remained at 50%. These higher minimum benefits remain in place for retirees and pensioners who qualified during this period, while new retirees will revert to the statutory level of 33% of the minimum wage. This temporary policy resulted in a more than six-fold increase in IPS subsidies to maintain minimum pension payments (Figure 3.9). Approximately 20 000 retirees and pensioners (about one fourth of all IPS retirees and pensioners) receive this minimum benefit in 2025.
Source: IPS.
The short reference wage period used to calculate pension benefits – currently being extended gradually to ten years – has contributed to relatively high pension payouts. In 2024, Paraguay enacted pension reform through Law No. 7446/2024, extending the reference wage period under the IPS from three years to ten years. The reform is being implemented gradually between January 2024 and December 2031, with the reference period increasing by one month each calendar month to reach 120 months by 2032. This measure is intended to strengthen both the equity and the financial sustainability of the pension system. By broadening the reference period, the reform reduces incentives for wage inflation in the years immediately preceding retirement, as well as for under‑reporting earnings earlier in the career and helps ensure that pension benefits more accurately reflect contributors’ lifetime earnings.
To ensure long-term financial sustainability and expand coverage, further parametric reforms to the pension system will be required. Delays in implementing these adjustments are likely to result in higher long-term costs, thereby increasing the need for more substantial corrective measures in the future. Key reform options discussed above include:
First, the IPS could consider introducing a partial pension for individuals who reach the statutory retirement age of 65 without having accumulated the minimum 15 years of contributions. Access to such a benefit should not preclude eligibility for the non-contributory pension scheme, Adulto Mayor (see Box 3.1). While this measure would improve pension coverage and reduce old-age income insecurity, it would also place additional financial pressure on the IPS pension fund.
Second, to help offset these costs and strengthen incentives for longer contribution histories, the structure of replacement rates could be revised. In particular, replacement rates could be redesigned so that additional contribution years beyond the current 25-year threshold lead to further increases in pension entitlements, with a full replacement rate (100%) reserved for individuals with at least 40 years of contributions.
Finally, pension contributions could be made gradually compulsory for independent workers, particularly those with higher incomes. These individuals could retain the option to contribute either to the IPS or to a private pension fund, thereby preserving a degree of choice while broadening the contributory base.
The Caja Fiscal is Paraguay’s primary pension scheme for public sector workers, including civil servants, teachers, military personnel, police officers, and judges. The Caja Fiscal was established in the early 20th century and underwent a major restructuring with the enactment of Law No. 2345 in 2003. The reform created a more unified pay-as-you-go pension scheme for the public sector workers, standardizing employee contribution rates at 16%. The Caja Fiscal is administered directly by the Ministry of Economy and Finance.
The Caja Fiscal has been running deficits for more than a decade. Between 2016 and 2022, the financial deficit of the Caja Fiscal accounted for approximately 15% of the central government’s overall fiscal deficit, representing between 2.2% and 4.5% of tax revenues (Apella and Montt, 2024[6]). Sub-funds covering public administration, judicial magistrates, and university professors have generally recorded financial surpluses, while those serving national teachers, armed forces, and police personnel have consistently operated in deficit (Figure 3.10). In 2024 and 2025, only the sub-fund for civil servants in the public administration operated with a surplus. The deficit in the national teachers’ fund is currently financed from the surplus of other civil funds (e.g. contributions from public administration staff). On the contrary, the deficit of the national police and armed forces funds is financed by general tax revenues (Apella and Montt, 2024[6]).
Note: The Caja Fiscal also comprises three additional special regimes for nurses, doctors and dentists of the MSPBS, which have their own pension parameters.
Source: MEF website, https://www.mef.gov.py/es/situacion-caja-fiscal.
The deficit of the Caja Fiscal has widened in recent years. In 2024, the deficit of the Caja Fiscal amounted to 0.66% of GDP or a quarter of Paraguay’s total fiscal deficit (PYG 2 559 903 million in 2025). This outcome is closely linked to the high level of generosity embedded in the system, including relatively early retirement ages, low minimum required contribution periods, replacement rates of up to 100% of previous earnings, and short reference periods used to calculate the reference wage. The most generous schemes tend also to be those experiencing the greatest financial pressures. The absence of employer contributions by the State further exacerbates existing financing challenges.
The financial deficit of the Caja Fiscal is projected to increase over time. According to official projections, the reserve fund of the civil servant sub-fund, which covers public administration workers, judges, teachers and university professors, will be exhausted by 2027. In the absence of a reform, the average annual deficit is forecasted to reach USD 796 million or 1.2% of GDP for the period 2027-2031 (MEF, 2026[17]). This deterioration is primarily driven by rising pension expenditures, reflecting demographic trends such as increased longevity and a growing number of beneficiaries, while revenue levels remain relatively stable.
A review of pension parameters across the schemes administered by the Caja Fiscal points to substantial differences between professional groups, contributing to inequities within the system (Table 3.2). These differences must be understood within their historical context, as they may have emerged through negotiations that encompassed not only pension entitlements but also broader employment benefits, such as wage adjustments. While the analysis presented in this section focuses exclusively on the pension parameters of the Caja Fiscal schemes, it is essential to consider the full range of benefits provided to each group while designing reform measures to ensure a comprehensive and equitable approach.
Note: The uniform contribution rate to the Caja Fiscal is 16% of the employee’s salary. *For national teachers, the base salary will be the average of the last five years, unless there were increases in shifts and teaching hours during that period, in which case it will be the average of the last ten years.
Source: MEF (2025).
Retirement ages under the Caja Fiscal are relatively low, and some sub-schemes do not establish a statutory retirement age. The minimum retirement age for receiving a public pension ranges from 50 years for judges to 62 years for civil servants, while no minimum retirement age applies to some professions, including national teachers, university professors, park rangers, patrol officers, police officers and military staff. On average the retirement age is lower than for private sector workers insured under the IPS (60 years). While lower retirement ages for specific occupations – such as military personnel or workers in physically demanding roles – are common international practice, the absence of a legally defined retirement age is unusual. Combined with relatively generous and largely flat replacement rates, these rules create strong incentives to retire as soon as the minimum contribution period is fulfilled.
Minimum qualifying contribution periods for pension eligibility are low, while replacement rates are generous. Figure 3.11 represents the minimum contribution periods and income replacement rates for the sub-schemes of the Caja Fiscal. Most pension schemes provide replacement rates exceeding 80% of previous earnings after only 25 years of contributions. The civil servants’ scheme is the only scheme where replacement rates increase with additional contribution years, creating incentives to work longer. A replacement rate of 100% is only reached after 40 contribution years under this scheme. As mentioned earlier, in OECD countries, net pension replacement rates from mandatory schemes are about 63% for the average earner. Another indicator to compare the generosity of the schemes is the return-on-contributions ratio. In the Caja Fiscal, the minimum return is observed for central administration workers who retire at age 62 (a return of 1.6) and the maximum for judicial magistrates who retire at age 50 (a return of 4.5). For police and military staff retiring at age 50 after 30 contribution years, the pension return is about 4. To set incentives to work longer and contribute more years, the other Caja Fiscal schemes could introduce replacement rates that increase in contribution years and penalise early retirement. In line with such a reform, the legal retirement ages need to be adapted and harmonised as much as possible.
Note: The presented replacement rates may apply at different ages, as official retirement ages vary across the Cajas or are undefined for some Cajas. The police and military personnel both reach replacement rates of 100% but are plotted slightly displaced for better visualisation.
Source: OECD based on data provided by MEF.
General recommendations:
Reduce fragmentation within the public sector pension system and promote more uniform treatment across sub-cajas.
Ensure the sustainable financing of the pension system across schemes.
Introduce incentives to extend working lives beyond the statutory retirement age by providing larger increases in replacement rates for additional years of contribution.
IPS pension fund:
Set incentives to contribute:
Consider introducing a partial pension arrangement for individuals who do not meet the minimum contribution period, while gradually withdrawing the Adulto Mayor social pension as contributory pension benefits increase.
Allow for voluntary/subsidised contributions during periods of formal job loss for a limited duration, drawing on international experience such as Thailand.
Adjust replacement rates downward, while allowing for increased pension replacement rates for contribution years beyond 25.
Consider gradually extending mandatory coverage to high-income independent workers in liberal professions, while allowing them to choose between contribution to the IPS pension fund or to an approved private pension scheme.
Caja Fiscal:
Gradually increase the reference period used for pension calculations to at least 10 years, in line with the parameters introduced under the recent IPS reform.
Harmonise minimum qualifying contribution periods and replacement rate parameters across the different sub-cajas to reduce fragmentation and improve horizontal equity.
Consider introducing an employer contribution rate in the public sector to reduce reliance on general government revenues to finance the deficit of the Caja Fiscal.
Introduce and, to the extent possible, standardize statutory retirement ages across the different cajas.
References
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← 1. The pension fund CAJUBI is a defined-contribution schemes since January 2024 (Resolution RCA-018/2023).
← 2. This section was drafted prior to the approval of the reform to the Caja Fiscal enacted through Law 7633/26. The reform introduced minimum retirement ages for workers in sectors that previously had no statutory retirement age requirements. It also increased the minimum number of contribution years and introduced higher employee contribution rates in specific sectors whose sub cajas were facing financial deficits. Moreover, the reform included the introduction of an employer contribution paid by the state and standardised the calculation rule across public sector professions by requiring the use of at least the average earnings over the last five years as the reference wage for pension calculations, and established incentives for later retirement. The measures included in the reform represent an important step towards restoring financial sustainability reducing reliance on general tax revenues and strengthening incentives to remain in work. They are broadly aligned with the recommendations set out in this report.