Pension and health systems in Latin America: the challenges of ageing, technological change and informality

Currently, just over 8% of the population in Latin America is 65 years of age or older, well below the 18% in Europe. By 2050, it is estimated that this figure will double to 17.5%, and by the end of the century, it will exceed 30%. These data are included in the 'Report on Economy and Development' (RED), prepared by CAF -development bank of Latin America- and presented in Madrid, in an event held with Casa de América and broadcast on its YouTube channel. RED 2020 addresses the ageing of the population as a generalised and accelerated phenomenon with a significant fiscal impact in the region. 

After the welcoming remarks by Rebeca Guinea, Director of Programming at Casa de América, the report was presented by Fernando Álvarez, Senior Economist at CAF, who highlighted that "pension systems currently show deficits averaging around 2% of GDP in the countries of the region, which will worsen as a result of the ageing process". For the economist, ensuring that pensioners receive "a sufficient minimum income" is one of the great challenges facing these systems, which in turn must strive to be financially sustainable. The study calculates that achieving universal coverage through an allocation equivalent to the current value of non-contributory pensions would cost, on average, around 0.24% of GDP. As a final reflection, Álvarez indicated that in order to make progress in the reforms, States need the capacity to quantify, measure and communicate; to achieve a balance between incentives for the creation of formal employment and insurance; to promote formality; and to implement an approach that considers gradualism, compensation for losers and a combination of different instruments such as increases in the retirement age, reduction of minimum years of contributions, adjustment of the replacement rate, among others.

For his part, Pablo Sanguinetti, CAF's Vice President for Knowledge, who was in charge of closing the presentation, highlighted that "pension and health reforms are issues that generate costs in the short term, but great benefits in the long term, and require broad political consensus sustained over time in order to put them into practice". In addition, the economist reflected that "these systems generally require additional public funding, as they cannot be sustained only with contributions from companies and workers, especially when we want to implement and strengthen non-contributory pensions". Sanguinetti also stressed that the tax changes needed to close pension system deficits in the future must be supported by the "generation of reliable and independent information and evidence, so that citizens have a better understanding of the need for these reforms".

The RED 2020 presentation event was also attended by CAF's representative in Europe, José Antonio García Belaunde, who highlighted the major challenges of enormous importance that have been on the political agenda of countries for years and which, as a result of the pandemic, have been heightened. García Belaunde assured that "social protection systems are very useful instruments for promoting economic and social development, as well as guaranteeing the well-being of citizens and improving their quality of life".

The presentation of the report was followed by a panel discussion, moderated by Ernesto Schargrodsky, Director of Socioeconomic Research at CAF, with the participation of Gina Magnolia Riaño Barón, Secretary General of the Ibero-American Social Security Organisation (OISS); Juan José García Ferrer, Director General of Elderly Care and Dependency of the Community of Madrid; and Sebastián Nieto Parra, Head of the Latin America and Caribbean Unit at the OECD Development Centre.  

Riaño Barón pointed out that "social security must adapt to telework, and to new technologies". Because of the pandemic," said the ISSO Secretary General, "a process that was expected to take at least five years has been carried out in barely a year and a half, and it must adapt its protocols. For his part, García Ferrer considered that among the policies learned during the pandemic were "a more flexible regime that allows for public-private collaboration that generates greater efficiency in current spending and the adaptation of co-payments". For his part, Nieto Parra highlighted the opportunity that is opening up in Latin America to rethink the social contract. "It is fundamental for the region to carry out a proper process of consensus building among citizens, where the role of the political class in reaching that consensus is more important than ever," said the head of the Latin America and the Caribbean Unit at the OECD Development Centre. 

CAF's Economic and Development Report 2020, which focuses on the situation of pension systems and health and care services, as well as the aspects of the labour market that condition their coverage and financing, covers four key issues: informality and technological changes as challenges for social protection, pension systems, health and care systems, and the financing of these new challenges.