The New Pension System in Argentina: Experiences and Lessons

In a context of serious ®nancial and legal crisis, Argentina reformed its pension system in 1994, when a multipillar model with a funded scheme was introduced and ®rst-pillar parameters, such as minimum age and vesting requirements, were tightened. The new system has a large ®rst pillar (which offers a ¯at bene®t of 28 percent of average wage to all retirees) and a second pillar that should provide a similar amount, once the transition is completed. The new system has developed rapidly and most formal workers have joined the new funded scheme. However, there are some problems that must be solved. On the ®rst pillar, the reform equilibrated the long-term ®nances, but it will also reduce coverage very rapidly, as a consequence of the combined effect of low formality in the labor market and higher requirements on contributions to obtain bene®ts. The most serious problems of the funded pillar are the administration costs and the need to improve regulation and supervision of insurance companies that provide disability and survivors', coverage and annuities to bene®ciaries. While these problems are serious, their consequences can be avoided if adequate policies are developed by the government. In this sense, the experience of pension reform in Argentina is an excellent lesson for other countries that are considering a reform in their own systems. 1