According to the Global Pension Index (GPI) issued by the Mercer Institute, Latin America's systems appeared among the worst of the 43 countries surveyed, with Argentina in 42nd place, only one notch above Thailand.
The index focuses on a list of countries that make up around 65% of the world's population and is based on adequacy, sustainability, and integrity.
Thailand and Argentina had finished 43rd and 42nd in 2020 as well, but Argentina scored 41.5 points in 2021, compared to 42.5 a year before, while Thailand fell from 40.8 to 40.6
Among those on the same page were: 41. Philippines (42.7 points); 40. India (43.3); 39. Turkey (45.8); 38. South Korea (48.3); 37. Mexico (49); 36. Japan (48.8); 35. Indonesia (50.4).
The best Latin American countries were Chile (16th, with 67 points), then Uruguay (20, with 60.7 points), Colombia (25, with 58.4 points), Peru (29, with 55 points) and Brazil (30, with 54.7 points).
Topping the list was Iceland with 84.2 points, followed by The Netherlands with 83.5 and Denmark with 82. Norway came in 4th with 75.2 points, barely above Australia's 75 points.
The study also reveals that pension systems can go a long way toward reducing the gender gap in pensions, a problem inherent in all systems.
Compared to 2020, China and the United Kingdom are the countries that have seen the greatest improvement as a result of a major pension reform, which led to improved outcomes for individuals and pension regulations.
The Mercer “report card”, similar to the graduation schemes of North American universities and credit rating agencies, includes 6 levels. Below A are the B + (general score, 70 to 80 points), in which three countries also cover (Australia, Israel and Norway) and B (here a more numerous group of countries appear, including Chile, with its AFPs system ), whose pension systems are considered “healthy in structure, with several good features, but areas in which they need to improve”.
The degrees C + and C +. between 50 and 65 points) cover countries whose pension systems have, according to Mercer, some good characteristics, but also important risks and weaknesses, without whose improvements their effectiveness and sustainability are in danger.
CFA Institute President and CEO Margaret Franklin noted that it is more important than ever to understand how retirement benefits can be improved. “The pandemic has exacerbated socioeconomic inequalities in many parts of the world. And, from a long-term investment perspective, we are immersed in an environmentr not very complex, with historically low interest rates and, in some cases, negative returns that clearly affect profitability, ”said Franklin.
In this sense, she also pointed out that “to worsen the situation, the gender gap in pensions poses additional and urgent challenges, since women must face their retirement years with fewer benefits. With these concerns in mind, the promise of a secure retirement depends on policy makers and industry stakeholders taking collective action to analyze the strengths and weaknesses of pension systems, with the goal of delivering greater retirement benefits to all individuals.”
Dr. David Knox, a senior partner at Mercer and lead author of the study, said it was critical that participants in the pension industry act immediately. Governments around the world have responded to COVID-19 with significant levels of economic stimulus, which has increased public debt and reduced the possibility that governments will be able to support their elderly population in the future.
Pension systems around the world are increasingly leaning towards accumulation plans, rather than traditional defined benefit plans. Despite the challenges ahead, this is not the time to stop pension reform, but rather to accelerate it. Individuals must become increasingly responsible for their own retirement income, and they need strong regulation and governance to receive support and protection, he added.
“In Argentina, women have financial challenges that have not yet been adequately resolved. Inequalities in the labor market are transferred to the field of social security as inequality of contributory coverage, said Clara Estevarena, Wealth Director of Mercer for Argentina, Bolivia, Uruguay and Paraguay.
“There are 4 factors that negatively affect the ability of women to consolidate pension rights: the lower level of female participation in the workforce compared to the male; the considerable differences in remuneration between the genders; the greater probability of a shorter or interrupted career and the excessive presence of women in informal and vulnerable work, she explained.
Regarding the Peruvian case, its pension system comprises an income-based pension paid to those most in need and two parallel and mutually exclusive pension systems. Individuals can choose when affiliating between a public defined benefit-sharing system and a fully funded and privately managed defined contribution system.
Only people under the defined benefit system can change since it is an irreversible decision. Employers do not make contributions to the system, all contributions are made by the employee; however, voluntary employer contributions are allowed.