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The Status of Pensions Systems in Central America: An Assessment

0100	Macroeconomía
114	The Status of Pensions Systems in Central America: An Assessment	- Cifuentes, Rodrigo - Larraín B., Felipe
This paper studies the current status and prospects of pensions systems in Central America. Pensions systems in the region differ widely on the date of their creation, ranging from 1941 (Costa Rica) to 1977 (Guatemala). Common characteristics of these systems are low fraction of population covered (with the exception of Costa Rica) and low rates of contribution charged, reflecting that most of them were created relatively recently. Most systems show small cash surpluses and while they still have some reserve funds, projections for all indicate that these reserves will not last for long. This paper reports that systems in the region also suffer from a series of other problems: 1) proliferation of parallel programs, which introduces multiple sources of demands on the government and situations of inequity; 2) inadequate provision of benefits, meaning that benefits are given to people that have not fulfilled the requirements; 3) poor investment performance of the reserve fund. The authors argue that, to a large extent, these problems result from the incentives embedded in pay-as-you-go (PAYG) systems, where property rights over contributions to the system are poorly defined. Prospects for PAYG systems are poor, given the projected increase in the ratio of the number of people over 65 years of age to the number of working age people.
September, 1997	40 Pages

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