Long hailed for its youth and vigor, Latin America is graying fast, raising the specter of fiscal crisis as retirees outnumber the able-bodied workers required to support them. Yet even as a new generation of national leaders seeks to shore up a shaky pillar of the social contract, a rebellion against pension reform is in full cry.
Chileans poured into the streets ahead of this year’s election to roll back free-market-inspired reforms conceived under former dictator Augusto Pinochet. Thousands of Argentines banged pots and pans against President Mauricio Macri’s overhaul of the loss-making pension system that passed congress last month. It’s no better in Brasilia, where a political insurrection is in bloom over pension fixes designed to rescue the country’s fraught finances, and maybe the mandate of beleaguered President Michel Temer in the bargain.
(Related: Rethinking the Chilean Model)
Just two generations ago, caring for granny seemed to promise no major headache. Cue the defenders of the elderly, who heralded the “longevity revolution” founded on “a culture of care that is sustainable, affordable, compassionate and universal.”
Belying that triumphalism was a demographic earthquake. Plunging birth rates, better nutrition and improved public health have sent Latin America’s longevity soaring. Since the early 1950s, the region’s average life expectancy for both men and women has risen nearly a quarter-century, from just over 51 years to almost 76 years in the five-year period from 2015 to 2020.
The population aged 60 and over in Central and South America and the Caribbean is set to overtake those aged 15 and under by 2036. By mid-century, the elderly will account for 26% of Latin America’s population, about the same share of grayheads as in the most developed countries today. The fastest growing segment of the population? Those over 80.
Those numbers may represent miracles of public medicine and urbanization, but they’re also a potential fiscal and economic menace, as regional governments race to make their societies wealthy before they grow old.
In an effort to avert fiscal collapse, Chile privatized pensions starting in 1981. Thirteen nations followed Chile’s lead over the next three decades by requiring workers to pay for their own retirement insurance through their career (the minimum number of years varied with each country). But Chile and its disciples discovered that instead of healthy competition, the Pinochet-inspired, market-based systems delivered pension monopolists who served up mediocre returns, charged steep fees, and left many uninsured, Carmelo Mesa Lago, a pension expert at the University of Pittsburgh, told me.
Enter the counter-reform, starting in 2008, whereby 14 Latin American and Caribbean countries rolled back private-sector insurance programs and deepened government involvement. Each side has its arguments, but pension hawks and doves both miss how flawed design, willful politicians and inflated expectations sank good intentions, and numbed nations to the coming crunch.
Whether in privately managed or government systems, payouts to retirees were typically more generous than the contributions workers paid into the system. As birth rates fell and lifespans increased, that proved a trap. The drama grew acute during economic busts, when pink-slipped workers drifted into the informal economy, where employment and wages were precarious, and contributions to the pension system irregular.