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Latin America: relentless inflation, a drag on pensions

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The effect of inflation, which has hit particularly hard in recent months, is shaking the pension systems of the main economies of Latin America, which are facing the crisis with different strategies and it is likely that later they will require additional efforts, according to an analysis by the Efe agency.

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The revaluation of pensions will be affected in the United States, Mexico, Brazil, Colombia, Argentina and Chile, countries that, despite having different models, agree that they have received the impact of the rise in prices and services derived from the war in Ukraine, the pandemic; the increase in transport and energy rates; and imbalances in the global distribution chain.

In Colombia, Mauricio Olivera, academic vice-chancellor of the Universidad de los Andes in Colombia and general manager of Econometrics Consultants, explains to Efe that the two crises —the pandemic and inflation— are especially shaking the countries that are fiscally weaker and they put pension systems at risk in the medium and long term. In addition to the fact that some already dragged failures for a long time.

In Mexico, an average formal worker receives less than 30% of his salary when he retires, below all the countries of the Organization for Economic Cooperation and Development (OECD)according to a report by the Bank of Mexico, which is leading some sectors to demand the elimination of the private pension system.

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However, the president Andres Manuel Lopez Obrador has ruled out new reforms after the one enacted in 2021, which increased the income of retirees by 40%, reduced the requirement of 25 years of contribution to 15 and increased the total contribution of the State and companies to the pension from 6.5% to 15% without increasing the share of workers.

In the face of inflation, there are still insufficient solutions

In USAincome for pensioners depends on different sources, such as Social Security payments or pension funds, and is not expected, in general, to be reduced to a single one.

Faced with inflation rates not seen since the 1980s, Social Security benefits, a public payment system that feeds on obligatory contributions, contemplates monthly increases according to the increases in inflation. But this is not enough: the increases range from 2% to 3% per year, well below the rate of increase in prices, which was 8.3% in August.

Meanwhile, in BrazilIn 2019, Congress approved a reform that imposed a minimum retirement age of 62 years for women and 65 for men, with a minimum contribution time of 15 and 20 years, respectively.

mixed systems

In Colombia there is a mixed pension system that allows workers to contribute to the state Colpensiones, under the average premium system, or in private funds, which have been operating since 1993 as individual capitalization accounts that receive the worker’s contributions and determine the amount of the pension.

President Gustavo Petro has proposed creating a new system based on a pillar scheme, starting with the most basic, to give greater coverage to poor elderly people, who currently lack a pension.

A similar system works in Peru, where affiliation to a pension system is mandatory for all dependent workers, who must choose between the private model, with at least 20 years of contribution of 13% of salary or income, or the public one, to achieve a minimum pension of S/ 500 (US$ 130).

individual capitalization

Chili was a pioneer in the region in discarding the distribution model: each formal worker contributes 10% of their monthly salary to a personal account, which they can access when they retire (60 years for women and 65 years for men). She is supervised by a Pension Fund Administrator (AFP)private companies regulated by the State that obtain millionaire profits after investing those savings in the markets, which add up to about 8% of Chilean GDP.

In ArgentinaOn the other hand, the current pension system is state and pay-as-you-go or solidarity; that is to say, it is nourished with the contributions to social security of a percentage of the obligatory income of independent and salaried workers. The law establishes that retirement must be equivalent to 82% of the income with which the worker retired and also be updated periodically.

Given the successive economic crises in the country, exceptional measures called “previsional moratoriums” have been applied that allow people to retire with fewer years of contributions, but receiving a lower pension.

With information from EFE.

Source: Larepublica

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