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SOCIAL SECURITY IN LATIN AMERICA
Assessing
the World Bank report
Keeping the promise
Carmelo Mesa-Lago
Distinguished Service Professor Emeritus of Economics,
University of Pittsburgh, United States
A new report of the World Bank released in 2004 evaluates
the performance of structural pension reforms in several Latin
American countries, ratifying some fundamental issues of
the Bank’s previous report of 1994 but contesting others,
acknowledging serious problems and recommending new
policies. In the light of available data from ten countries with
structural reforms in the region, as well as the author’s own
research, this article discusses nine key elements of the new
report: coverage, compliance, competition among
administrators, managerial costs, capital accumulation, effects
on capital and financial markets, fiscal costs, general and
gender equity, and isolation from politics.
In 1994, the World Bank pub lished the re port, Avert ing the old age cri sis, that
be came the world par a digm for struc tural pen sion re forms, in volv ing a
shift from pub lic sys tems (char ac ter ized by de fined ben e fits, pay-as-you-go
— PAYG — fi nanc ing, and pub licly man aged pen sion programmes) into
pri vate sys tems (char ac ter ized by de fined con tri bu tions, fully funded fi -
nan c ing and pri vately man aged programmes). In Latin Amer ica, the pi o -
neer Chil ean re form of 1981 pre ceded and in flu enced said re port, and struc -
tural re forms have been in tro duced in nine other coun tries: Peru in 1993,
Ar gen tina and Co lom bia in 1994, Uru guay in 1996, Bolivia and Mex ico in
1997, El Sal va dor in 1998, Costa Rica in 2001, and the Do min i can Re pub lic in
2003-06 (for de tails see Mesa-Lago, 2004). In this last coun try, the re form in -
© In ter na tional So cial Se cu rity As so ci a tion, 2005 In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005
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97
A pre lim i nary, abridged ver sion of this pa per was pre sented at the con fer ence of the World
Bank in Bogotá in 2004. The pres ent ver sion sub stan tially ex pands the orig i nal, adds new data
and anal y sis, up dates the in for ma tion to Au gust 2004, and pro vides ex act ci ta tions and a bib li -
og ra phy. The au thor alone is re spon si ble for this ar ti cle but grate fully ac knowl edges com -
ments by Fabio Bertranou and Tru man Packard, as well as in for ma tion sup plied by Aurelio
Suarez Verge.
volves three stages and the sec ond one — sched uled to be gin in 2004 — had
not been im ple mented by Au gust. In Ec ua dor the sys tem had not be gun be -
cause its 2001 law has been con tested at the con sti tu tional court. In Nic a ra -
gua the im ple men ta tion of the 2000 law has been postponed indefinitely
because of unsustainable transitional fiscal costs.
One de cade af ter the 1994 re port, the World Bank has elab o rated a new
re port eval u at ing the out comes of struc tural pen sion re forms in the re gion
(Gill, Packard and Yermo, 2004, here af ter GPY). This im por tant, so phis ti -
cated and con tro ver sial study rati fies sev eral key as sump tions and rec om -
men da tions of the 1994 re port but in other cases ques tions them, and also
iden ti fies and anal y ses fun da men tal prob lems con fronted by the re forms,
some times with re fresh ing can dour. The ques tion whether the re forms
have been suc cess ful is an swered with “it depends”:
If the new struc tures are viewed as a final design, the efforts may well be assessed
harshly, because scores of peo ple are left uncov ered . . ., there are some adverse
equity effects, and the cost and risk man age ment . . . are some what defi cient. On
the other hand, if the cur rent struc tures are viewed as a tran si tory stage, . . . the
reforms should be viewed as suc cess ful, because the move ments have been in the
right direction.
De spite the prob lems found, the re port ar gues that “it would be a mis take to
go back to the un sus tain able struc tures that ex isted prior [to the re forms]”;
how ever, “it would also be a mis take to think of the [cur rent] stage as the
‘final struc ture’ . . . the 1990s could be seen as a tran si tion to struc tures that
are sus tain able” (GPY, pp. 12-13).
Two ma jor dif fer ences are ac knowl edged in the new re port with re spect
to its pre de ces sor: (1) the ben e fit of more ex pe ri ence: “we can re place in -
formed con jec ture based on the re form in one coun try (Chile) with em pir i -
cal eval u a tion of more than two de cades in Chile”, and six to ten years in
seven other coun tries; and (2) “a prin ci pal ob jec tive [of the re port] is to try to
de ter mine whether par tic i pants (not just the ad min is tra tors . . .) in pen sion
sys tems are better or worse off since the re form” (GPY, pp. 1-3). Fur ther -
more, the new re port is con sid er ably more open and flex i ble than its pre cur -
sor and a draft was pub licly pre sented and de bated in a con fer ence held in
Bogotá in June 2004 (www.worldbank.org/lacpensionconf).1
It is im pos si ble in this lim ited space to do jus tice to the re port but this ar -
ticle se lects nine key is sues from said re port and anal y ses them in light of
recent sta tis tics from ten coun tries with im ple mented struc tural re forms in
Latin Amer ica and the au thor’s own re search: cov er age of the la bour force,
In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005 © In ter na tional So cial Se cu rity As so ci a tion, 2005
98
As sess ing the World Bank re port Keep ing the prom ise
1. Most crit i cism of the report at the Bogotá con fer ence came from pen sion admin is tra tors. On
the other side, the Super in ten dent of the sys tem in Argen tina was crit i cal of the flaws of such a
sys tem.
com pli ance, com pe ti tion among ad min is tra tors, man a ge rial costs, cap i tal
ac cu mu la tion, ef fects on cap i tal and fi nan cial mar kets, fis cal costs, gen eral
and gender equity, and isolation from politics.
Coverage of the labour force
Pen sion re forms were ex pected to ex tend cov er age to a wider seg ment of
the pop u la tion, through an in crease in in cen tives for af fil i a tion: es tab lish ing
a tight re la tion ship be tween con tri bu tion and the pen sion level, par tic u larly
among in for mal work ers. The re port af firms that in most coun tries such
incentives were improved but
cov er age ratios — after ris ing mod estly due to the reforms — have stalled at lev -
els of about half of the labor force in those coun tries where work ers’ par tic i pa tion
is higher [Chile and Mex ico]. In most coun tries the ratios are much lower . . . stag -
nant cov er age ratios are indic a tive of skep ti cism of the new sys tem, despite its
vir tues [and] may even sig nal a rejec tion of the new multi-pil lar approach by
many work ers . . . Since increased cov er age was one of the objec tives of the
reforms, . . . [the] lack of prog ress in this area has raised dis con tent (GPY, pp. 3, 5,
70, 217).
The au thor’s own es ti mates in di cate that the prob lem is even more se ri ous
be cause cov er age ap pears to have de clined rather than stag nated. The first
two col umns of Ta ble 1 mea sure cov er age of the la bour force, com bin ing
active con tri bu tors in both sys tems (pri vate and pub lic) and com par ing the
year be fore the re form (or the year of the re form) with the year 2002. Cov er -
age de creased in all coun tries,2 and the weighted av er age cov er age de -
creased from 38 to 27 per cent. This com par i son con fronts some prob lems
(see Mesa-Lago, 2004), but there are two stan dard ized se ries for Chile that
con firm the de clin ing trend. The first se ries shows a max i mum of 79 per
cent in 1973, a de crease to 64 per cent in 1980 (prior to the re form), a fur ther
decrease to 58 per cent in 1997 and stag na tion there af ter (SAFP, 2002). The
sec ond se ries shows a de cline from 62 per cent in 1975 to 48 per cent in 1980,
an in crease to 62 per cent in 1997 and a fall to 58 per cent in 2000 (Are nas de
Mesa and Hernández, 2001). GPY as serts that cov er age rose mod estly in
Chile af ter the re form but fails to note that cov er age was higher prior to the
mil i tary coup and de creased to a trough in 1980, the year be fore the re form.
© In ter na tional So cial Se cu rity As so ci a tion, 2005 In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005
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As sess ing the World Bank re port Keep ing the prom ise
2. GPY esti mates of cov er age shown in the third col umn of Table 1 are con sid er ably dif fer ent
from the author’s except for Peru: higher in Argen tina, Chile, El Sal va dor and Mex ico; lower in
Bolivia and Costa Rica (sub stan tially lower); no data were given for Colom bia, the Domin i can
Repub lic or Uru guay. These fig ures seem to include cov er age in both the pri vate and pub lic
sys tems; if cov er age in the pri vate sys tem alone were used it would be con sid er ably lower
(see AIOS, 2004).
The re port also sug gests that cov er age would have been smaller with out the
struc tural re form; nev er the less, the au thor’s es ti mates in di cate that in 2002,
two pub lic sys tems (Brazil and Pan ama) had lev els of cov er age be tween
two and four times higher than those in seven countries with structural
reforms (Mesa-Lago, 2004).
The al leged in cen tives for af fil i a tion have nei ther halted the flight to the
in for mal econ omy nor pro moted an in crease in its cov er age as was ex pected
from the re forms. Con versely, trans for ma tions in the la bour mar ket have
led to an ex pan sion of the in for mal econ omy (from 42 to 47 per cent of ur ban
em ploy ment in 1990-2001), which is vir tu ally ex cluded from pro tec tion.
Two de cades af ter the re form in Chile, cov er age of self-em ployed work ers
— the most im por tant seg ment of the in for mal econ omy — was 5 per cent,
while it was less than 10 per cent in Co lom bia and about 1 per cent in
Mexico. Both pri vate and pub lic pen sion sys tems in Latin Amer ica con front
a dou ble chal lenge: to halt the fall in cov er age of the for mal sec tor and to in -
In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005 © In ter na tional So cial Se cu rity As so ci a tion, 2005
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As sess ing the World Bank re port Keep ing the prom ise
Ta ble 1. Cov er age: Per cent age of the la bour force cov ered by pub lic sys tem
be fore the re form and by pri vate and pub lic sys tems in 2002
Coun try Cov er age based
on con tri bu tors be fore
the re form (year)
Cov er age based
on con tri bu tors
in 2002
Cov er age
(World Bank)
1998-2002
Ar gen tina 50 (1994) 24 36
Bolivia 12 (1996) 11 10
Chile 64 (1980) 58 63
Co lom bia 32 (1993) 24 n.a.
Costa Rica 53 (2000) 48b23
Do min i can Re pub lic 30 (2000) 12 n.a.
El Sal va dor 26 (1996) 19 26
Mex ico 37 (1997) 30 46
Peru 31 (1993) 11 11
Uru guay 73 (1997) 60 n.a.
Av er agea38 27 n.a.
n.a.= not avail able.
a Weighted with the pop u la tion of the coun tries.
b June 2003.
Sources: Mesa-Lago, 2004; Do min i can Re pub lic based on SIPEN, 2004; World Bank based on house hold sur veys
from Gill, Packard and Yermo, 2004, p. 6.
clude the ex pand ing in for mal econ omy. Last but not least, the mi nor ity of
coun tries with rel a tively high lev els of pen sion cov er age also have the low -
est lev els of pov erty in ci dence as well as so cial as sis tance pen sion schemes
to pro tect the poor, while the large ma jor ity of coun tries with low lev els of
cov er age also endure high poverty incidence and lack social assistance
pension schemes (Mesa-Lago, 2004).
The re port warns that the cur rent lim ited cov er age could lead in the fu -
ture to a high pro por tion of older peo ple with out pro tec tion de spite the fact
that the ma jor ity of coun tries have the fis cal and ad min is tra tive where -
withal to ful fil that func tion. House hold sur veys taken in 1997-2002 and re -
pro duced in the re port show that only three coun tries had from 33 to 66 per
cent of the aged pop u la tion pro tected (Ar gen tina, Chile and Costa Rica),
while in six other coun tries pro tec tion was only 9 to 20 per cent. Fur ther -
more, “in sev eral Latin Amer i can coun tries the share of el derly re ceiv ing
pen sion ben e fits is ac tu ally fall ing”. The first and most im por tant rec om -
men da tion of the report is, therefore, quite appropriate:
the pov erty pre ven tion pil lar should get a lot more atten tion than it has had in
Latin Amer ica dur ing the last decade [and] to the extent that gov ern ments have
lim ited resources to admin is ter or super vise pen sion sys tems, the pri or ity should
be the first [pov erty pre ven tion] pil lar, rather than man da tory sav ings schemes
[sec ond pil lar] (GPY, pp. 6, 10, 99, 219-220).3
Compliance in payment of contributions
Ac cord ing to the re port, “the re forms ap pear to have im proved the in cen -
tives to con trib ute to the for mal [pri vate pen sion] sys tem” be cause own er -
ship of the in di vid ual ac count and a strong link age be tween con tri bu tion
and the pen sion level should re duce eva sion and pro mote punc tual pay -
ment of con tri bu tions. How ever, the re port qual i fies that as sump tion:
“ despite the time that has passed since re forms in sev eral coun tries, the
expected im prove ment in in cen tives . . . has not been rig or ously tested”, in
Chile there are “fall ing num bers of ac tive con tri bu tors in the la bor force”,
and in Latin Amer ica there is a “low den sity of con tri bu tions to the man da -
tory pil lar” (GPY, pp. 4, 81, 179). On the ba sis of sur veys taken only in San ti -
ago de Chile and Lima (not at the na tional level), the re port in fers that there
is a higher con tri bu tion den sity af ter the re forms. But it cau tions that these
re sults “can not be used as ev i dence that the tran si tion to pri vate in di vid ual
© In ter na tional So cial Se cu rity As so ci a tion, 2005 In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005
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101
As sess ing the World Bank re port Keep ing the prom ise
3. The report data reveals “a pref er ence for gov ern ment schemes for pool ing resources to
insure against old age pov erty, com pared with gov ern ment-man dated sav ing instru ments”
(GPY, p. 5).
ac counts is the only way to im prove in cen tives and achieve greater rates of
par tic i pa tion [com pli ance]”, be cause sim i lar im prove ment may arise from
link ing con tri bu tions and pen sion lev els within PAYG [as in Brazil] and no -
tional de fined-con tri bu tion sys tems (GPY, p. 151, ital ics in the orig i nal). In
ad di tion, the re port found that Chil ean af fil i ates who com plete the needed
con tri bu tions to ob tain the min i mum pen sion usu ally stop con trib ut ing to
the pri vate sys tem and make a ra tio nal de ci sion to give pri or ity to less risky
and costly al ter na tives, e.g. hous ing, house hold en ter prise or ed u ca tion. In
Peru there is a de cline in the prob a bil ity of con trib ut ing the greater an
affiliate’s accumulated contributions, and housing is an active alternative to
mandated savings (GPY, pp. 146, 150).
In con trast with the re port’s as sump tion of better com pli ance af ter the re -
form, Ta ble 2 shows that the per cent age of af fil i ates who were ac tive con tri -
bu tors (in the past month) steadily de creased in all coun tries in 1998-2004
with few ex cep tions. In Co lom bia, the stan dard ized es ti mate based on the
con tri bu tion in the past month (in stead of at least one con tri bu tion in the
past six months) de clined 10 per cent age points in 2004 vis-B-vis 2003. In
Bolivia there was also a sig nif i cant de crease in 2003 and in Mex ico in 2001.
The to tal num ber of af fil i ates that con trib uted fell from 58 per cent in 1998 to
42 per cent in 2003.
There are mul ti ple rea sons for de clin ing com pli ance rates: (1) many affi -
liates have aban doned the la bour force or are un em ployed; (2) af fil i ates
who had for mal em ploy ment have shifted to the in for mal econ omy; (3)
some em ploy ers keep the with held con tri bu tions in stead of trans fer ring
them to the pri vate sys tem (in Chile the em ployer’s debt for that rea son rose
six times in 1990-2002; it was equiv a lent to 1 per cent of the to tal pen sion
fund in 2002, and 43 per cent of it was uncollectable); (4) many af fil i ates con -
trib ute just the nec es sary to qual ify for the min i mum pen sion and max i mize
the state sub sidy to such ben e fit, and then stop con trib ut ing; and (5) the sig -
nif i cant size of the worker’s con tri bu tion and its in crease in six coun tries
(largely as the re sult of the elim i na tion or re duc tion of em ploy ers’ contri -
butions) have gen er ated in cen tives for both eva sion and pay ment de lays
(Mesa-Lago, 2004). Con cern ing the lat ter, the re port ac knowl edges: “The
ease with which in di vid u als avoid the man date in Latin Amer i can coun -
tries casts doubt on its use ful ness, at least at cur rent con tri bu tion lev els. It is
likely that . . . eva sion is partly linked to the level of man dated con tri bu tions
. . . if man da tory con tri bu tion rates were de creased . . . the con tri bu tion fre -
quency is likely to in crease” among low-in come and young work ers. Based
on the lat ter ar gu ment and other rea sons, the re port aptly rec om mends
reducing the con tri bu tion and the max i mum tax able wage for the sec ond
man da tory-sav ing pil lar, es tab lish ing a min i mum con tri bu tion to se cure a
In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005 © In ter na tional So cial Se cu rity As so ci a tion, 2005
102
As sess ing the World Bank re port Keep ing the prom ise
ba sic pen sion, and giv ing more weight to the vol un tary third pil lar — the
insured persons would have liberty to decide whether to contribute and the
amount, as well as to select providers and forms of saving (GPY, pp. 13,
194-196).
Competition among administrators
The re port found im por tant flaws in com pe ti tion in the pri vate sys tem:
(1) the in dus try is “oligopolistic”; (2) heavy reg u la tions and tight re stric -
tions on switch ing be tween ad min is tra tors have “cre ated a cap tive cli en tele
for each pen sion fund ad min is tra tor and in sti tu tion al ized what was de
facto al ready an oli gop oly”; and (3) “pen sion fund in dus tries in Latin
Amer ica are any thing but good ex am ples of com pe ti tion” (GPY, pp. 52-53,
115, 180, 185).
© In ter na tional So cial Se cu rity As so ci a tion, 2005 In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005
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103
As sess ing the World Bank re port Keep ing the prom ise
Ta ble 2. Com pli ance: Per cent age of af fil i ates who con trib uted to the pri vate
sys tem in the past month, De cem ber 1998 to 2003, and mid-2004
Coun try 1998 1999 2000 2001 2002 2003 2004a
Ar gen tina 48.9 44.3 39.1 29.0 33.2 35.2 37.2
Bolivia n.a.cn.a.cn.a.c47.0 46.9 39.0 n.a.
Chile 52.8 53.4 50.9 53.7 51.0 51.9 51.6
Co lom bia n.a. 51.6d48.5d48.7d47.6d48.7 d 38.5d
Costa Rica n.a.en.a.e73.1 n.a.
El Sal va dor 67.2 63.7 55.2 53.2 47.6 46.3 42.5
Mex ico 63.4f60.2f57.9 f 44.7 41.7 39.3 n.a.
Peru 45.6 45.7 41.7 41.2 39.4 41.9 40.2
Uru guay 67.4 58.7 53.9 53.2 45.1 52.7 52.9
To talb57.9 55.5 51.0 43.5 42.1 42.0 n.a.
n.a. = not avail able.
a March-July.
b Es ti mate based on to tal af fil i ates and to tal con tri bu tors in all coun tries with avail able data.
c Un til 2001 con trib u tor was an af fil i ate who had at least one con tri bu tion since the in cep tion of the system.
d In 1999-2003 con trib u tor was an af fil i ate who had at least one con tri bu tion in the past six months; in 2004 in the past
month.
e The sys tem be gan in 2001; in 2001-02 con trib u tor was an af fil i ate who had at least one con tri bu tion in the past year.
f In 1998-2000 con trib u tor was an af fil i ate who had a con tri bu tion in the past two months.
Sources: 1998-2002 from Mesa-Lago, 2004; 2003 from AIOS, 2004; 2004 from BCU, 2004; CONSAR, 2004;
SAFJP, 2004; SAFP, 2004; SBC, 2004; SBS, 2004; SP, 2004; SPVS, 2004; SUPEN, 2004.
Com pe ti tion de pends in large mea sure on the size of the in sured mar ket:
the big ger it is, the more ad min is tra tors who op er ate and vice versa. The
first two col umns of Ta ble 3 rat ify this as sump tion: in 2004 Mex ico had
32 mil lion af fil i ates and 12 ad min is tra tors, Chile 7 mil lion and six, Peru
3 mil lion and four, and Bolivia and El Sal va dor about 1 mil lion and two.4 In
the long run the num ber of ad min is tra tors di min ishes, for in stance, in Ar -
gen tina from 25 to 12 and in Chile from 21 to six. Costa Rica and the Do min i -
can Re pub lic have nine ad min is tra tors de spite their small mar kets, be cause
their sys tems have just be gun or are in the early years. A fac tor that seems to
help in cre at ing more ad min is tra tors is its mul ti ple char ac ter (pri vate, pub -
lic and mixed); for in stance, Uru guay has the same num ber of ad min is tra -
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As sess ing the World Bank re port Keep ing the prom ise
Ta ble 3. Com pe ti tion: Size of in sured mar ket, num ber of ad min is tra tive firms
and con cen tra tion, end 2003 to mid-2004
Coun try Af fil i ates
(thou sands)aNum ber
of ad min is tra tive
firmsa
Per cent age of af fil i ates
in big gest firmsb
Two big gest Three big gest
Ar gen tina 9,712 12 42 55
Bolivia 860 2 100 100
Chile 7,046 6 56 80
Co lom bia 5,453 6 46 66
Costa Rica 1,140 9 66 n.a.
Do min i can Re pub lic 552 9 56 71
El Sal va dor 1,124 2 100 100
Mex ico 32,322 12 44 n.a.
Peru 3,274 4 59 76
Uru guay 646 4 75 86
n.a.= not avail able.
a May-July 2004, ex cept De cem ber 2003 for af fil i ates in Costa Rica.
b De cem ber 2003.
Sources: AIOS, 2004; BCU, 2004; CONSAR, 2004; SAFJP, 2004; SAFP, 2004; SBC, 2004; SBS, 2004; SIPEN, 2004;
SP, 2004; SPVS, 2004; SUPEN, 2004.
4. In Bolivia the gov ern ment divided the insured pop u la tion between two admin is tra tors,
based on the affil i ates’ domi cile, and banned switch ing between the two pro vid ers until 2002;
the major share holder in both admin is tra tors is a Span ish bank; by mid-2004 an expected third
pro vider had not entered the mar ket.
tors as Peru de spite a mar ket size one-fifth of the lat ter. Coun tries with
struc tural re forms not yet im ple mented and small mar kets (such as Ec ua -
dor and Nic a ra gua, with 300,000 and about 1 mil lion in sured re spec tively)
will face sig nif i cant ob sta cles to se cure a suf fi cient num ber of pro vid ers and
com pe ti tion, and the same would be true of coun tries with out struc tural
reforms such as Gua te mala, Hon du ras, Pan ama and Par a guay. To fa cil i tate
com pe ti tion, these coun tries would have to open the mar ket to bank ing and
fi nan cial in sti tu tions that al ready have a na tional net work and could re duce
costs. The report debates the opening to mutual funds and insurance com -
pa nies, particularly for the third pillar (GPY, pp. 196-206)
The re port also ex presses con cern on con cen tra tion: in 2003 it was 100 per
cent in the big gest three firms in two coun tries, and 71 to 86 per cent in
another four coun tries. When based on the big gest two ad min is tra tors, con -
cen tra tion de clines but still ranges from 56 to 100 per cent in seven coun -
tries. Mex ico re duced con cen tra tion to 44 per cent be cause the law set a
max i mum of 20 per cent of the mar ket to each pro vider (Ta ble 3, last two
col umns). Con cen tra tion in the big gest three Chil ean firms showed a ris ing
trend from 63 to 80 per cent in 1983-2004. If the big gest firms are the ones
offering the best con di tions (lower ad min is tra tive costs and high est cap i tal
re turns) there should not be a con cern for con cen tra tion, but the au thor has
proved that this had not been al ways been true in Chile through time. Sur -
veys taken in var i ous coun tries with re form show an as ton ish ing lack of in -
for ma tion among the in sured pop u la tion on their in di vid ual ac counts, com -
mis sions charged and cap i tal re turns earned, as well as scarce skills to
choose the best ad min is tra tors, which are se lected mostly on ad ver tise ment
and the work of sales peo ple who are hired and paid com mis sions by the
larg est firms (Mesa-Lago, 2004). There has not been a con certed, con tin u ous
ef fort from ad min is tra tors, su per vis ing agen cies and gov ern ments to in -
form and ed u cate the in sured pop u la tion, and part of the con sid er able
amount spent in mar ket ing should be in vested in pro vid ing clear, prompt
and com pa ra ble in for ma tion to the lat ter to prop up better se lec tions. To im -
prove trans par ency of in for ma tion on com mis sions and de pos its the re port
also rec om mends “simulating their impact on the expected pension ben -
efit” (GPY, p. 186).
Managerial costs
The re port as serts that Latin Amer i can pri vate pen sion sys tems have “been
gen er ally suc cess ful at re duc ing costs”, al though com mis sions are still
“ unacceptably high for a large per cent age of the pop u la tion”, and such
reduction has been achieved “at the cost of re strict ing in di vid ual choice and
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As sess ing the World Bank re port Keep ing the prom ise
com pe ti tion be tween pen sion fund ad min is tra tors . . . In Chile and a few
other coun tries, com mis sion rates are only slowly com ing down to rea son -
able lev els [less than 20 per cent of the to tal de duc tion] . . . Only a small por -
tion in the de cline in op er at ing ex penses are be ing passed on to af fil i ates as
lower com mis sions . . . Peru shows a dra matic de cline in the ad min is tra tive
costs . . . [by al most half in 1998-2002], ac com pa nied by in creas ing re turn on
equity of the fund man ag ers, but per sis tently high fees charged to af fil i ates
. . . Such di ver sions from work ers’ con tri bu tions that are man dated by gov -
ern ments should be cause for alarm” (GPY, pp. 7, 115, 180).
Ta ble 4 pres ents per cent age de duc tions from work ers’ wages that go to
de posit in in di vid ual ac counts, man a ge rial costs (com bin ing com mis sions
for ad min is tra tors of old-age pen sion funds and pre mium paid to com mer -
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106
As sess ing the World Bank re port Keep ing the prom ise
Ta ble 4. Man a ge rial cost of the pri vate sys tem: De posit, costs, to tal de duc tion
and ad min is tra tive bur den (as per cent ages of wages), De cem ber 2003
Coun try De posit in
in di vid ual
ac count
Man a ge rial costs
(com mis sion plus
pre mium)a
To tal de duc tion Ad min is tra tive
bur den (costs
as per cent age
of to tal de duc tion)
Ar gen tina 4.46 2.54 7.00 36.28
Bolivia 10.00 2.21 12.21 18.10
Chile 10.00 2.26 12.26 18.43
Co lom bia 10.00 3.50 13.50 25.93
Costa Rica 4.50 dn.a. n.a.
Do min i can Re pub licb 5.00 2.00 7.00 28.57
El Sal va dor 11.02 2.98 14.00 21.28
Mex ico 6.99 4.01 11.00 36.45
Peru 8.00 3.19 11.19 28.51
Uru guay 12.18 2.82 15.00 18.80
Av er agec 8.63 2.83 11.46 25.82
n.a. = not applicable.
a Com mis sion charged by the ad min is tra tor of the old-age programme and pre mium for the in sur ance
com pany to cover dis abil ity and sur vi vor risks.
b In ad di tion, 30 per cent is charged on the amount that ex ceeds the av er age cap i tal re turn.
c Non-weighted av er age of nine coun tries (ex cludes Costa Rica).
d There is no com mis sion on wages but a per cent age over the gross cap i tal re turn.
Sources: AIOS, 2004; Co lom bia from SBC, 2004; Do min i can Re pub lic from SIPEN, 2004.
cial in sur ance com pa nies to cover dis abil ity and sur vi vor risks),5 the to tal
de duc tion, and the ad min is tra tive bur den (costs as a per cent age of the to tal
de duc tion). At the end of 2003, man a ge rial costs os cil lated from 2 to 4 per
cent of wages. Only in three coun tries (Bolivia, Chile and Uru guay) was
the administrative bur den 18-19 per cent of the to tal de duc tion, and in
the re main ing six coun tries such bur den ranged from 21 to 36 per cent; the
av er age in nine coun tries was 26 per cent. This heavy bur den is ex clu sively
financed by the worker (ex cept in Co lom bia) and, com bined with the high
worker’s con tri bu tion, con sti tutes a strong dis in cen tive to af fil i a tion and
com pli ance.
Fix ing man a ge rial costs as a set per cent age of wages (as in the large
majority of coun tries) does not cre ate in cen tives for cost re duc tion, and the
serious flaws in com pe ti tion are ad di tional ob sta cles. An al ter na tive would
be set ting costs as a per cent age of the cap i tal re turn, as in Costa Rica, but we
lack in for ma tion on its re sults. The re port es tab lishes as a pri or ity low er ing
man a ge rial costs and states that Chile has slowly re duced them, but histor -
ical data show that the ad min is tra tive bur den was 2.44 per cent in 1981,
peaked at 3.6 per cent in 1984 and de clined to 2.26 per cent in 2003, only
0.18 points be low the start ing rate af ter 22 years. Pol i cies dis cussed in the
report are to place a cap on com mis sions as has been done in some OECD
coun tries, con sider the in tro duc tion of a cen tral ized sys tem of col lec tion
( although GPY did not find a sig nif i cant cost re duc tion com pared with the
pre dom i nant de cen tral ized col lec tion sys tem), and open the competition to
other financial entities (see GPY, pp. 11-12, 180-186).
Capital accumulation
The re port found a sig nif i cant cap i tal ac cu mu la tion in the pen sion fund and
that its re gional rate dou bled from 7.1 to 13.5 per cent of GDP in 1998-2002
(GPY, p. 50). Ta ble 5 con firms this as ser tion, al beit the ac cu mu la tion and
rate vary greatly among coun tries ow ing to fac tors such as the size of the
econ omy, the num ber of in sured per sons, the wage level, cap i tal re turns
and the time the sys tem has been in op er a tion. At the end of 2003 Chile
showed the high est fig ures (close to US$ 50,000 mil lion and 64 per cent of
GDP) and Costa Rica the low est (US$ 305 mil lion and 1.8 per cent); in the
nine coun tries the to tal ac cu mu la tion was US$ 117,835 mil lion and the av er -
age rate of GDP was 12 per cent. Ac tu ally Brazil had the high est ac cu mu la -
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As sess ing the World Bank re port Keep ing the prom ise
5. The report sep a rates com mis sions and pre mi ums, con cen trat ing the anal y sis of costs on the
for mer. Nev er the less, com mis sions are the larger com po nent of costs, their per cent age of the
total deduc tion is still quite high and they have not exhib ited a declin ing trend in most coun -
tries (Mesa-Lago, 2004).
tion in the re gion (US$ 80,000 mil lion) al though its rate ranked third (18 per
cent) be cause it has the larg est econ omy in the re gion. This is even more re -
mark able be cause Brazil does not have a man dated sec ond pil lar but vol un -
tary, sup ple men tary pen sion schemes.
Tak ing into ac count that fact, the re port adopts a flex i ble po si tion: the
only way to cap i tal ac cu mu la tion is not through “heavy re li ance” on a man -
dated sec ond pil lar (as in the twelve coun tries with re form), a “rig idly
defined and not-so-eas ily reg u lated in stru ment [that] de serves to be re as -
sessed”. The man dated pil lar “may act as a tran si tion in sti tu tion to sub sti -
tute for miss ing or in ad e quate in stru ments, un til pri vate cap i tal mar kets
can pro vide ef fi ciently priced sav ings and in sur ance ve hi cles”. In those
coun tries with out re form and where those in stru ments al ready ex ist, “man -
dat ing a par tic u lar form of pri vate sav ings in stru ment [the cur rent sec ond
pil lar] can pres ent a new set of dis tor tions . . . Coun tries such as Brazil that
have rea son ably well-de vel oped cap i tal mar kets may well choose to change
the pa ram e ters of their pub lic PAYG pen sion sys tem rather than switch to a
mandatory funded scheme” (GPY, pp. 12-13, 154-155, 220).
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As sess ing the World Bank re port Keep ing the prom ise
Ta ble 5. Cap i tal ac cu mu la tion in the pri vate sys tem (in mil lions of US dol lars
and as per cent age of GDP) in De cem ber 2003
Coun try Ac cu mu lated cap i tal in all in di vid ual ac counts
Mil lions of US$ Per cent age of GDP
Ar gen tina 16,139 13.5
Bolivia 1,493 20.9
Chile 49,690 64.5
Co lom bia 5,350a 6.2a
Costa Rica 305 1.8
El Sal va dor 1,572 10.9
Mex ico 35,743 5.7
Peru 6,311 10.6
Uru guay 1,232 11.4
To tal/av er age 117,835 12.0
a De cem ber 2002.
Sources: AIOS, 2004; Co lom bia from Mesa-Lago, 2004.
Effects on capital and financial markets, and investment
The re port eval u ates the pos i tive ef fects of the pen sion funds on cap i tal and
fi nan cial mar kets, sep a rat ing such ef fects from other pol i cies and pin point -
ing some prob lems: (1) “cap i tal mar ket de vel op ment in Latin Amer ica has
been driven largely by state-spon sored mod ern iza tion of cap i tal mar ket
infrastructure, tax and bank ruptcy re forms, and by the reg u la tory struc ture
. . . for pen sion funds and other fi nan cial in sti tu tions”; (2) “trans par ency
and in teg rity in fi nan cial mar kets have been dra mat i cally im proved [but in
prin ci ple] these im prove ments could have taken place in de pend ently of the
pen sion re form”; and (3) “the in sta bil ity cre ated by a large tran si tion debt is
an ob sta cle to the deep en ing of fi nan cial mar kets [and] in the ab sence of a
sus tained fis cal ef fort . . . tran si tion costs can se verely cur tail the pos i tive
im pact of pension funds on capital markets” (GPY, pp. 43, 54, 68).
The re port also eval u ates in vest ment of the funds: (1) fis cal costs of the
tran si tion have forced many gov ern ments to set ceil ings to in vest ment
instruments, re strict ing for eign se cu ri ties and fa vour ing debt-pub lic in stru -
ments — the main ben e fi cia ries of the growth of pen sion funds — there fore,
“di rect pen sion fund fi nanc ing to the pri vate sec tor through bonds and
equities is still rel a tively low”; (2) “while the illiquidity of pen sion in vest -
ments cou pled with the con ser va tism in in vest ment strat e gies has brought
sta bil ity to [cap i tal] mar kets, much of this sta bil ity is ar ti fi cial [be cause] it is
driven at least in part by port fo lio rules that force pen sion funds to hold
mainly do mes tic as sets and in some coun tries oblige them to in vest a min i -
mum per cent age . . . in gov ern ment bonds”; (3) “in all coun tries in di vid u als
have no in vest ment choice . . . the ad min is tra tors, un der the guid ance of
reg u la tions, de cide in vest ment al lo ca tion [ex cept in Chile]” and ex hibit a
“herd ing in stinct . . . some thing par tic u larly wor ry ing [be cause] the in dus -
try is in creas ingly the dom i nant in ves tor in cap i tal mar kets”; as the in dus -
try is in creas ingly con cen trated, “in vest ment de ci sions [are be ing put] into
fewer hands”; and (4) “the pre car i ous fis cal po si tions of the gov ern ments in
the re gion have — through high in ter est rates on gov ern ment debt is sues —
re sulted in high gross re turns of the port fo lio”, which raises three con cerns:
how long these high re turns can be main tained where fis cal ad just ments
have re duced the spread of gov ern ment debt, the risk of default where fiscal
adjustment is low, and falling gross returns coupled with persistently high
commissions (GPY, pp. 7, 51-54, 68-69).
Sev eral of the ob ser va tions of the re port are con firmed by Ta ble 6, which
ex hib its the dis tri bu tion of the pen sion fund port fo lio by in stru ments at the
end of 2003. In five out of nine coun tries, from 64 to 82 per cent was in vested
in gov ern ment debt, and in two other coun tries, 49 and 57 per cent (only
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As sess ing the World Bank re port Keep ing the prom ise
Chile and Peru had a mi nor share in pub lic debt). As the re port fit tingly
warns, such heavy con cen tra tion leads to a de pend ency on state-fixed in ter -
est, dan ger ous for both fu ture cap i tal re turns and the pen sion level. Ar gen -
tina had the high est an nual av er age cap i tal re turn since the in cep tion of the
fund un til 2000 (15 per cent), be cause the state in ter est rate was very high,
al though it could not be sus tained in the long run.6 Ow ing to strong fis cal
pres sure, the gov ern ment com pelled the ad min is tra tors to con vert in stru -
ments in dol lars into “guar an teed” bonds in pe sos; the su per in ten dency
col lab o rated by rais ing the ceil ing of in vest ment in pub lic debt; the cri sis of
2001-02 led to the de val u a tion of the peso, a re duc tion in the in ter est rate
and a dras tic fall in both the fund and the pro jected pen sion in dol lars (ILO,
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As sess ing the World Bank re port Keep ing the prom ise
Ta ble 6. Port fo lio di ver si fi ca tion: Per cent age dis tri bu tion of to tal pen sion fund
by fi nan cial in stru ment in De cem ber 2003
Coun try Gov ern -
ment debt
Fi nan cial
in sti tu tions
Non-
fi nan cial
Stocks Mu tual
funds, etc.
For eign
emis sions
Oth ers
Ar gen tina 68.9 3.6 1.5 11.8 2.8 9.7 1.7
Bolivia 64.1 7.3 16.7 8.6 0.0 1.7 1.5
Chile 24.7 26.3 7.7 14.5 2.9 23.7 0.1
Co lom bia 48.6 19.4 18.6 5.2aa 7.2 1.0
Costa Rica 79.5 13.8 5.7 0.0 1.0 0.0 0.0
El Sal va dor 82.3 13.2 4.2 0.3 0.0 0.0 0.0
Mex ico 82.3 4.5 13.2 0.0 0.0 0.0 0.0
Peru 19.5 21.4 12.1 35.5 1.0 8.8 1.7
Uru guay 57.2 37.1 3.4 0.0 0.0 0.0 0.0
Av er ageb51.0 15.3 8.9 10.2 1.7 12.4 0.4
a Un clear dis tri bu tion be tween stocks and mu tual funds.
b Dis tri bu tion of to tal fund by fi nan cial in stru ment; ex cludes Co lom bia.
Sources: AIOS, 2004; Co lom bia from SBC, 2004.
6. Annual aver age gross rates of return (adjusted for infla tion) since the incep tion of the sys -
tem until the end of 2003 were, in per cent ages: 13.8 in Uru guay, 11 in Bolivia, 10 in Argen tina
and Chile, 8 in Costa Rica, Mex ico and Peru, and 6.6 in Colom bia (AIOS, 2004; SBC, 2004). If the
cost of the com mis sion were deducted, the aver age (net) return would have been lower. A pre -
vi ous draft of the report noted that “in terms of invest ment and per for mance objec tives, pen -
sion funds are hardly dif fer ent than mutual funds, hence, it is pos si ble that sim i lar ben e fits
could have been obtained had the pen sion fund reg u la tory frame work also been applied to the
mutual fund indus try” (Gill, Packard and Yermo, 2003, p. 59).
2002). Con versely, in Chile af ter the cri sis of 1982-83 threat ened the new
pen sion sys tem, the su per in ten dency played a cru cial role in pro mot ing the
di ver si fi ca tion of the portfolio and, after 20 years, cut the share invested in
public debt from 50 to 25 per cent.
De spite the prom ise that the re form and cap i tal ac cu mu la tion would
help to fi nance the pri vate sec tor, in vest ment in stocks av er aged only 10 per
cent and was sig nif i cant only in four coun tries (9 to 36 per cent). The al ter na -
tive, to in vest in for eign in stru ments, was pro hib ited in sev eral coun tries;
the share av er aged 12 per cent (more than the share in stocks) and was sig -
nif i cant in only three coun tries (9 to 24 per cent; see Ta ble 6). Small coun tries
with out a cap i tal mar ket or with an in cip i ent one con front a se vere bar rier
to di ver si fy ing their port fo lios and a high risk of heavy de pend ence on
public debt in stru ments. The su per in ten dency of pen sion funds must be
truly in de pend ent and should play an ac tive role in the pro mo tion of new
in stru ments and port fo lio di ver si fi ca tion. Coun tries, par tic u larly small
ones, should au tho rize in vest ment in for eign in stru ments, in a grad ual and
cau tious manner, with the aims of diversification, higher accumulation and
a better pension.
Fiscal costs during the transition
Ac cord ing to the re port, “en sur ing fis cal sta bil ity was the pri mary im pe tus
be hind the re gion’s pen sion re form”; re port sim u la tions pre dict that the
reforms are “likely to have a ben e fi cial im pact on the fis cal sustainability of
pen sion sys tems”, al though the re port cau tions that such sim u la tions “have
to be in ter preted very care fully, and can not re place care ful coun try-spe cific
anal y sis” (GPY, pp. 7, 36). Fis cal costs are dif fi cult to mea sure, pro ject and
com pare among coun tries be cause of di verse com po nents and meth od ol o -
gies.7 The re port’s pro jec tions of fis cal costs in five coun tries are contrasted
in Table 7 with domestic projections.
The World Bank es ti mates in 2001 and pro jec tions for 2040 are higher
than the cor re spond ing do mes tic fig ures in Ar gen tina, Bolivia and Co lom -
bia. The Bank es ti mate for Chile in 2001 is 1 per cent age point higher than the
do mes tic es ti mate in 2000 de spite the fact that it in cluded a 1.3 per cent def i -
cit from the armed forces, prob a bly ex cluded by the Bank; con versely, the
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111
As sess ing the World Bank re port Keep ing the prom ise
7. Tran si tional fis cal costs involve three nor mal com po nents: the oper a tional def i cit in the
closed pub lic pen sion sys tem; the value of con tri bu tions made to the closed sys tem by the
insured per sons who moved to the pri vate sys tem; and the min i mum pen sion guar an teed by
the State to insured per sons in the pri vate sys tem whose accu mu la tion in the indi vid ual
account is insuf fi cient to finance said pen sion. Other com po nents are the cost of social assis -
tance pen sions and the def i cit in the armed forces scheme (Mesa-Lago, 2004).
Bank pro jects a cost for 2040 al most 3 per cent age points lower than the
domestic pro jec tion. In Ar gen tina, Bolivia and Co lom bia, do mes tic and
Bank pro jec tions for 2040 are higher than the es ti mated cost at the start of
the re form. The re port’s sim u la tions pro ject that the im plicit pen sion debt
(IPD) will be cut in five coun tries with re form con trasted with the sce nario
of no re form (cuts are in sig nif i cant in Ar gen tina and Co lom bia), but the
fiscal cost is high and has jeop ar dized sta bil ity in four coun tries (GPY,
pp. 28-33). The re port con cludes that (1) de spite the pro jected cut in IPD,
“fis cal sustain ability is far from as sured”; (2) “pen sion re forms can cre ate
new im plicit and ex plicit li a bil i ties”; and (3) “em pir i cal ev i dence shows that
pen sion re forms can pro duce se vere cash-flow prob lems in ex cess of ini -
tially pro jected tran si tion costs” (GPY, p. 43). In Nic a ra gua, the Min is ter
of Fi nance an nounced in July 2004 that the im ple men ta tion of the sys tem
has been post poned in def i nitely be cause, as it is cur rently de signed, the
coun try can not fi nance the tran si tional fis cal costs (SSA, 2004). It is cru cial,
there fore, that coun tries con sid er ing a struc tural re form un der take pro -
jections of fis cal costs in a realistic and cautious manner, with the aid of
international organizations, and that they pub lish such projections for pub -
lic scrutiny.
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112
As sess ing the World Bank re port Keep ing the prom ise
Ta ble 7. Do mes tic es ti mates and pro jec tions of fis cal costs at the start
of the re form and later, con trasted with pro jec tions of the World Bank in 2003
(per cent ages of GDP)
Coun triesaDo mes tic ini tial and later pro jec tions World Bank pro jec tions
Start year 2000 2020 2040 2001 2020 2040
Ar gen tina 2.5 1.8b0.3 –0.2 2.5 2.3 3.6
Bolivia 0.2 2.2 0.9 0.2 3.5e2.1 1.7
Chile 3.8 6.1 3.6 3.3 7.2 3.4 0.5
Co lom bia 0.9 1.5c2.2 2.0d1.6c1.0 3.4
Uru guay 5.1 4.5 3.8 3.6 4.0 2.1 2.5
a The Bank also has pro jec tions for El Sal va dor, Mex ico and Peru but we lack do mes tic pro jec tions.
b Av er aged 4.6 per cent an nu ally in 1995-2000.
c An other do mes tic es ti mate raised it to 3 per cent in 2000.
d Year 2025; the pro jec tion did not ex tend to 2040.
e The Bank also es ti mates it as 5 per cent (Gill, Packard and Yermo, 2004, p. 37).
Sources: Do mes tic pro jec tions and es ti mates com piled by Mesa-Lago, 2004; World Bank pro jec tions from Gill,
Packard and Yermo, 2004, p. 35.
General and gender equity
To the ques tion whether the re gres sive im pact of pub lic pen sion sys tems
has been cor rected by the re forms, the re port cau tiously answers:
Very lit tle evi dence exists one way or another, largely because reform ing gov ern -
ments are still pay ing tran si tional costs and because the final impact of struc tural
reforms on income inequal ity can not be pre cisely mea sured until large seg ments
of the pop u la tion begin to retire with pen sions financed pri mar ily from indi vid -
ual accounts (GPY, p. 71).
Nev er the less, the re port pres ents re sults of sim u la tion ex er cises, all shown
in bars not in num bers, nei ther sum ma riz ing the meth od ol ogy nor pro vid -
ing the as sump tions and base data.8 The first sim u la tion as sessed changes
in in ter nal rates of re turn earned by poorer ver sus wealth ier work ers
cov ered by pen sion sys tems in eight coun tries with re forms (a date was not
pro vided) and con cluded that in all coun tries the re form low ered the re -
gres sive im pact of pub lic sys tems. The sec ond sim u la tion eval u ated the
mar ginal con tri bu tion to in equal ity of in come gen er ated by pen sions
vis-B-vis pri mary la bour in come in 1995, in seven coun tries: two with pri -
vate sys tems (Ar gen tina and Chile) and five with pub lic sys tems (Bolivia
and Uru guay be fore the re form, Brazil, Par a guay and Ven e zuela). The con -
clu sion is that the re gres sive ef fect of pen sions was higher in the pub lic sys -
tems than in the re formed sys tems. The re port du ti fully ac knowl edges that
the re form in Ar gen tina started in July 1994, only one year be fore the year of
the ex er cise, too re cent to mea sure any im pact, hence leav ing only Chile
with a pri vate sys tem. Uru guay is con sid ered “an ex cep tion”, but it is un -
clear what this means; the Uru guayan re form be gan in 1997 (two years af ter
the sim u la tion ex er cise) and the least re gres sive im pact of pen sions among
the seven coun tries was found in Uru guay, which had a pub lic sys tem. In
ad di tion, the out come could have been dif fer ent if coun tries with uni fied
and stan dard ized pub lic sys tems (such as Cuba and Pan ama) had been se -
lected for the sim u la tion, in stead of four of the most strat i fied and re gres -
sive. Fi nally the re port prop erly pin points that even re formed sys tems with
large funded pil lars will con trib ute to in eq ui ta ble out comes where a sub -
stan tial por tion of the la bour force is un cov ered by such a sys tem (GPY,
pp. 70-72, 74-75).
Most of the lit er a ture on the im pact of struc tural pen sion re forms on
gender in Latin Amer ica con cludes that it has in creased in equal ity for the
fol low ing rea sons: (1) pri vate sys tems re quire a given num ber of years of
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113
As sess ing the World Bank re port Keep ing the prom ise
8. After the Con fer ence in Bogotá, a new tech ni cal annex has been incor po rated in the report,
pro vid ing the assump tions (infor ma tion from Tru man Packard, 31 August 2004).
con tri bu tion to grant a min i mum pen sion and most of the re forms have
increased those years, mak ing it more dif fi cult for women — who have a
lower con tri bu tion den sity than men — to gain that pen sion; (2) the pen sion
is based on con tri bu tions dur ing the whole work ing life, in stead of only the
last years be fore re tire ment, as in most pub lic sys tems in the re gion, harm -
ing women whose den sity of con tri bu tions is low; and (3) the an nu ity is cal -
cu lated with mor tal ity ta bles dif fer en ti ated by gen der, the sum ac cu mu -
lated in the in di vid ual ac count be ing di vided by the av er age life ex pec -
tancy, and hence, women’s pen sions are lower than those of men, who have
a shorter life ex pec tancy, with the fe male pen sion fur ther re duced if re tir ing
five years ear lier as is le gally stip u lated in four coun tries with re form
(Bertranou and Are nas de Mesa, 2003; ECLAC, 2003; Mesa-Lago, 2004).9
In a third sim u la tion ex er cise, the re port as sessed the gen der im pact of
the re form in eight coun tries (all with re forms, and excluding the Domi -
nican Re pub lic), based on the dif fer ence be tween in ter nal rates of re turn of
women and men, with mixed re sults: (1) in two coun tries the women’s
return in creased mar gin ally in re la tion to that of men; (2) in one coun try the
re form re versed dis tri bu tion re turns in fa vour of women; (3) in three coun -
tries reforms re placed sub si dized ben e fits for women with sub si dized ben -
efits for men; and (4) in all coun tries, de spite the re forms, women earned
lower re turns than men. The sim u la tion as sumed that men and women had
the same work and con trib u tory his tory, which must have over es ti mated
women’s rates of re turn. In ad di tion, the re port ac knowl edges that ow ing to
higher life ex pec tancy and sex-spe cific mor tal ity ta bles, an nu ities re ceived
by women are lower than men’s, even if re tir ing at the same age. Pol i cies
men tioned in the re port to im prove gen der eq uity in clude man dat ing mar -
ried in sured men to re tire with joint an nu ities that would cover their fe male
spouse; the use of uni sex mor tal ity ta bles is not en dorsed be cause they are
con sid ered highly con tro ver sial and det ri men tal to the de vel op ment of
private insurance markets, the report recommending instead first-pillar
subsidies (GPY, pp. 72-74).
Isolation from politics
It was widely as sumed that the in sured own er ship of the in di vid ual ac -
count, the tight re la tion ship be tween con tri bu tions and the level of ben e fit,
and the pri vate ad min is tra tion of the pen sion funds would im pede the tra -
In ter na tional So cial Se cu rity Re view, Vol. 58, 2-3/2005 © In ter na tional So cial Se cu rity As so ci a tion, 2005
114
As sess ing the World Bank re port Keep ing the prom ise
9. In Chile, in 2000-01, the aver age pen sion fund of women was from 32 to 46 per cent lower
than men’s; the female replace ment rate was 52-57 per cent ver sus the 81-86 per cent male rate;
and the aver age pen sion of a retired women at age 60 was 60 per cent of that a retired man,
or 87 per cent if retired at age 65 (SAFP, 2002; Bertranou and Are nas de Mesa, 2003).
di tional gov ern ment and po lit i cal in ter fer ence in pub lic pen sion sys tems in
the re gion. Nev er the less, the World Bank (1994, p. 203) was aware of two
problems:
If gov ern ments have mis man aged their [pub licly] admin is tered pen sion sys tems,
how can they be counted on to reg u late pri vate funds effec tively? If gov ern ment
reg u lates and guar an tees the schemes, won’t it even tu ally end up con trol ling
these funds?
The ILO and sev eral well-known schol ars, in clud ing the for mer Chief Econ -
o mist of the World Bank, an swered these two ques tions by dis miss ing the
myth of po lit i cal im mu nity. The new re port is quite can did in its eval u a tion
of what has hap pened in reality:
The abil ity of the multi-pil lar model to iso late the pen sion sys tem from abuse by
gov ern ments may have been over sold by reform ers . . . the degree of pro tec tion
against pol icy risk offered by pri vat iz ing . . . pen sions can be exag ger ated . . .
Argen tina illus trates how any gov ern ment-orga nized retire ment secu rity sys tem
[pub lic or pri vate], can fall prey to pol i ti cians [but] sim i lar threats to the via bil ity
of funded pen sion schemes can emerge in other countries of the region.
For in stance, Bolivia has at tempted to fol low the Ar gen tine ap proach to
force a swap of dol lar-de nom i nated gov ern ment debt held by pen sion
funds for risky bonds de nom i nated in lo cal cur rency (GPY, pp. 4-5, 133).
The flex i bil ity and open ness of the re port are a wel come de vel op ment in
the heated de bate on struc tural pen sion re form and hope fully should lead
to ap pro pri ate pol icy changes in pri vate sys tems and a thought ful ex am i na -
tion of para met ric or struc tural re forms in the re main ing pub lic sys tems. As
the report asserts:
The great est dan gers to all that the reforms have achieved lie not in coun tries
where the new approach . . . is being scru ti nized and altered, but in coun tries
where man dated sav ings is viewed as a solu tion for the ages (GPY, p. 13).
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