Comparison of Target Rates of Return in Latin American Mandatory Pension Systems for the Period 1997-2016

摘要

The aim of this work is to analyze which is the required average real return that Latin American workers need to obtain from their retirement funds, in order to get a reasonable pension at retirement, according to each system parameters; and to discuss if those required returns are feasible in the current economical context, or if any changes in the pensions designs are necessary. The results are that from the eight countries under analysis (Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Mexico, Peru and Uruguay), three do not reach a replacement rate of 70% or more (Dominican Republic, Mexico and Peru). Hence, in order to increase the replacement rate at an acceptable level in those countries, the actual rate of return on pension assets has to increase as much as 1.6 times, which seems unlikely at the current market conditions. Therefore, the compulsory pension systems of those countries should increase their contribution rate in 2 times from the actual level, with the purpose to provide an appropriate retirement to their members.