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Governments have realized the negative impact of early retirement on social expenditures and labor costs, responding with a paradigm shift away from passive labor market policies. Governments seek to reverse early exit by raising the retirement age in pension systems, reforming disability insurance, closing special early retirement programs, activating older workers, and fostering gradual transitions to retirement. These reforms met many obstacles given the entrenched multiple pathways and status quo defense of the social partners, particularly as benefits came to be viewed as acquired rights.

This chapter examines an effect of pension reform that was largely unanticipated, or at least seldom explicitly considered, when many pension reforms were being adopted throughout Latin America: the effects of privatization on women's welfare. First, it provides a brief overview of the sources of gender inequalities and discusses elements of pension policy affecting gendered welfare. Second, it explains and critiques the insurance-based criteria for evaluating the gender effects of pension reform. Third, it offers an alternative set of criteria for evaluating gender outcomes based on three dimensions: women's ability to claim social citizenship rights, gender stratification, and the distribution of welfare responsibility among the market, state, and family. Finally, it compares interpretations of the gendered effects of pension reform in Latin America based on insurance and distributive assumptions to illustrate why disagreements in the literature persist.

This chapter introduces the Encuesta de Previsión Social (EPS, or Social Protection Survey), a recently developed longitudinal survey of individual respondents that provides invaluable new information for microeconomic analyses of key aspects of the Chilean pension system, and illustrates some of the analyses possible with these data. Initiated in 2002, the EPS fielded a follow-up round in 2004; additional survey waves were scheduled for 2006 and every two years thereafter (funding permitting). In addition, the research team has worked to link respondent records to a wide range of historical administrative files on contribution patterns, benefit payments, and other program features. Among the findings is that participation rates are much higher with automatic enrolment in retirement plans than with opt-in enrolment. Many individuals view the employer default savings option as an implicit endorsement of both the contribution rate and the distribution of funds. Default choices are not neutral; they play a role in every stage of the lifetime savings cycle, including savings plan participation, contributions, asset allocation, rollovers, and decumulation.

Over the past two decades many countries have adopted multipillar pension systems that include both a public DB and a private DC pillar. Critics of these pension reforms argue that the tight link between payroll contributions and benefits in the DC pillar produce lower pensions for women. In contrast, supporters of these reforms argue that multipillar systems remove distortions that favour men and permit a more targeted public pillar that help women. This chapter examines the differential impact on genders of the new and old systems in Chile, Argentina, and Mexico. In all three cases, the new social security system includes two mandatory components: privately managed funded individual accounts (DC) and a publicly managed and financed safety net. Women accumulate retirement funds and private annuities from the DC pillar of the multipillar systems that are only 30-40% of those of men. This effect can be mitigated by introducing two critical elements into the new systems: (a) targeting the new public pillars toward low earners, because the majority of low earners are women, and (b) restricting payout provisions such as joint annuity requirements. With these modifications, total lifetime retirement benefits for women would reach 60-80% of those for men. For ‘full-career’ married women, they would equal or exceed benefits of men.

This chapter analyzes pension reform in Peru. Peru's reform introduced private savings accounts while maintaining a fiscally unsustainable public pillar that must eventually be fixed. A number of factors led to the slow acceptance of the new system, including the fact that workers had more incentive to remain in the old PAYGO system, which offered a lower contribution rate, a lower retirement age, and a minimum pension guarantee. However, eventual adjustments allowed the new system to compete more effectively for workers. The performance of the Peruvian system with respect to investment, fees, competition, and coverage is analyzed, and it is argued that reducing political interference is crucial to its future success.

This chapter begins with a brief discussion of the introduction of a state-sponsored pay-as-you-go (PAYGO) pension system in Germany over a century ago, and pension reform in Latin American countries. It then considers the shift in the process of pension reform in organizations such as the World Bank and the International Monetary Fund, and countries such as Chile, beginning in 2004. An overview of the succeeding chapters is presented.

This chapter begins by presenting Estelle James' points of discussion if she were to cowrite a sequel to Averting the Old Age Crisis. Truman Packard then summarizes some of the issues raised in Keeping the Promise of Social Security in Latin America and highlights the most important points for pension policymakers. In particular, this chapter addresses the issues of low coverage and the expected outcome of pension reforms. The World Bank's framework for pension systems and reform is discussed.

This chapter analyzes the decision-making process surrounding pension reform in Latin America. It argues decision to emulate the Chilean model did not follow the procedures of full, ‘economic’ rationality. Rather they were shaped by shortcuts of bounded rationality. Instead of proactively scanning the international environment for the relevant information, experts and policymakers mostly reacted to information about Chilean-style privatization that happened to be available to them. Rather than conducting systematic, balanced, cost-benefit analyses of this innovation, many of them were overly impressed by the initial success of Chile's private pension funds and used associative reasoning in depicting social security privatization as the main cause for the dramatic increase in domestic savings and productive investment and the resulting growth boom experienced by Chile. Furthermore, instead of thoroughly adapting the Chilean import to their own country's requirements, decision-makers in a number of countries stayed strikingly close to the original. Thus, these pension reformers did not apply the principles of comprehensive rationality, but displayed the three principal shortcuts documented by cognitive psychologists in innumerable experiments and field studies: the heuristics of availability, representativeness, and anchoring.

This is the first of three chapters on the distinctive policy dynamics of particular areas of social provision. In their chapter on the dynamics of pension reform, Myles and Pierson stress a key feature of public pension systems: the fact that the implications of policy choices only play out over a very long period of time. Almost all pension systems are undergoing major reforms, yet choices made twenty‐five or fifty years ago profoundly shape the nature of the reform options available now. Most countries are severely constrained in their options by the accumulated commitments from decades of experience with social insurance; only where countries failed to develop large pay‐as‐you‐go pension systems at these earlier junctures has the much‐heralded alternative of introducing extensive funded arrangements proven to be a viable option. Myles and Pierson also emphasize the need to legitimate often politically painful revisions to this key element of the post‐war social contract — while there has been major change everywhere, in almost all countries this has required broad negotiations, including left‐of‐centre parties and/or labour unions.

This comparative chapter by Ebbinghaus and Neugschwender discusses the institutional differences in the public–private mix, distinguishing mature from emerging multipillar systems and hybrid from dominantly public pension systems. It focuses on exploring the interaction between income inequalities in working life and pension system features for old age income. In particular, it considers the first tier of minimum income support, the public and private second-tier earnings-related pensions, and the particularities of private pensions. The empirical analysis compares poverty rates over time and across countries, discussing the impact of public pensions. The further analysis reveals variations in the recipient rate and income share of private supplementary pensions among the elderly. The importance of mandatory or negotiated occupational pensions in order to reduce inequality in multipillar pension systems is evident in addition to the role of public minimum income protection for poverty reduction.

This chapter by Ebbinghaus and Gronwald provides a comparative historical analysis mapping the cross-national institutional diversity in the evolution of pension systems in ten European countries. Analysing the long-term development, it describes the way in which institutional arrangements in private pensions evolved over time and interact with public pension reforms. The process of institutional change is examined by analysing critical junctures in the public–private pension mix. First, the early legacy and path-dependent post-war dynamics in public pension development are sketched, contrasting Bismarckian social insurance and Beveridge basic pension traditions. The second juncture compares successful versus belated or even failed expansion of public pensions to secure living standards in old age, and its consequences for crowding out private pensions. Finally, the more recent pension reforms led towards a multipillar pension system, in some cases retrenchment of public pensions and privatization efforts are crowding in funded private pensions.

During the past two decades, Costa Rica has transformed its pension system into a ‘mixed model’ that combines collective and individual savings. This chapter focuses on the structural reform approved in 2000 and in effect since May 2001 and the parametric reform approved in May 2005. The 2000 reform created a multipillar system, which included the R égimen de Invalidez, Vejez y Muerte (RIVM, or the Disability, Old-Age, and Survivorship Regime). The RIVM was created in 1943 and currently reaches nine out of every ten insured workers in the country. The 2005 parametric reform modified requirements and benefits of the RIVM and created new benefits while seeking to strengthen the collective capitalization system. Both reforms strengthened the administrative effectiveness of the RIVM. The chapter discusses the main historical characteristics of the pension system, focusing on the RIVM; describes the political context for the design and adoption of the main reforms of the past five years; and explains both reforms in detail. It also examines the strengths and weaknesses of the implementation process and concludes with an exploration of tensions within the Costa Rican pension reform.

This chapter describes Uruguay's 1995 pension reform, which is based on a multipillar or mixed, system, with contributions and benefits linked to both a state-managed PAYGO system and privately managed individual savings accounts. Since its implementation, the reform faced challenges arising from its design, turbulent financial markets, and difficulties with respect to political and social acceptance. The new pension system emerged in good condition after the country's worst financial crisis, which happened in 2002. The system now faces renewed political challenges after the election of a political coalition that had opposed the creation of the new mixed system. However, the lack of a viable alternative to the 1995 reform suggests that current policies will be maintained, though it is likely that policymakers will make advisable and necessary adjustments.

This comparative chapter by Ebbinghaus and Wiß analyses the governance of supplementary pensions in ten European countries and the scope for state intervention or collective regulation by employers and trade unions. Private occupational and personal pensions combine different features in terms of coverage, benefits, funding rules, supervision, and administration. While the state partially retreated from the public responsibility to finance sufficient and adequate pensions, the need for and importance of state regulation and societal control of private pensions increased. Societal actors like trade unions, employers' associations, and financial services became more important in governing pension systems. Since the pension beneficiaries rely as principals on agents with more financial knowledge, regulation should decrease asymmetric information and limit uneven power distribution. The more pensions are privatized and funded, the more a financial crisis can increase risks for old age income security.

The introductory chapter discusses the need for studying the changing public–private pension mix and the governance and regulation of private (occupational and personal) pensions. Public pension systems with pay-as-you-go financing have not only come under pressure due to demographic and socio-economic changes but also the recent financial crisis has challenged funded private pensions. Mapping the main features of the public–private pension mix of the selected ten European countries, the chapter gives an overview of the content of the country chapters, drawing some lessons from their varied experiences. The introduction also sketches the main topics of the three comparative studies on the changing public–private pension mix, the varieties of pension governance and regulation as well as the poverty and inequality patterns emerging from the different pension systems.

Denmark developed a multipillar pension system, adding private pensions to its universal flat-rate, tax-financed ‘people's pension’. Following the failure to introduce a public earnings-related supplementary pension, fully funded ‘labour market’ pensions were added through collective agreements between employers and trade unions, extending these occupational pensions to nearly all employment groups since the early 1990s. Comprehensive institutional change took place almost without any legislation by non-state actors, except for the reform of the public basic pension which became increasingly means-tested. Private pension governance is typically left to pension funds or to special life insurance companies jointly owned and controlled by unions and employers. Strict rules protect pension funds against financial shocks, but these were eased during the financial crisis to improve returns on these defined-contribution (DC) pensions. Nevertheless, the Danish pension system looks quite satisfactory from both an economic and social policy perspective.

On July 1, 1997, a new privatized pension plan — called the Seguro de Retiro, Cesantía en Edad Avanzada y Vejez (RCV, or Retirement and Old Age Insurance) — took effect in Mexico. This chapter begins with a short description of the new system giving special attention to the cuota social or social quota, and the housing subaccount. It then discusses the coverage issue in the context of the government's claim that higher coverage would be an important advantage of the new system. It looks at the market structure of the pension funds in Mexico and investment portfolios, and tackles the cost structure of running the funds, transition costs, and the cost of the payout phase, noting the inequality between men and women in terms of the future pension payout. Finally, it reviews the conditions that may lead low-income affiliates to fall back on the minimum pension guaranteed by the reform. It shows that the system faces a number of challenges, including a reduction in the ratio of contributors relative to affiliates, high commission charges, and a likelihood that the government will have to support the old-age poor when lower-income individuals retire with insufficient funds in their accounts. On the other hand, the government bond market has deepened, bringing more financial security to the pension system.

The Netherlands departed from the Bismarckian social insurance tradition by combining flat-rate public basic pensions with quasi-mandatory, funded occupational pensions with near universal coverage. The emergence, expansion, and reorganization of occupational pensions show their close integration with the public pension scheme. Many efforts helped expand and improve coverage through collective agreements by employers and trade unions. Short case studies of pension funds in the public and private sector highlight the core features of the Dutch system as well as its institutional variation. In the wake of the financial crisis, occupational pensions were scaled back since these defined-benefit (DB) pensions were threatened by underfunding. Current debates question the future viability of the Dutch system in an era marked by both demographic ageing and volatile financials.