Description:
Over the last two decades, the Argentine pension system has made extraordinary progress in extending coverage--now reaching to nearly one hundred percent of the elderly--by expanding its non-contributory scheme and establishing automatic benefit adjustment mechanisms and increasing the replacement rate. Nonetheless, important challenges remain which may require public policy interventions in the near future. Some challenges are relevant in the short term, relating to coverage and equity of the system, while others are important in the longer term associated with the financial sustainability of the system in the context of population aging. The non-contributory benefits to reduce the coverage gap did not consider the labor history of workers and their past partial contributions, generating a horizontal inequality problem. Additionally, the coexistence of different pension schemes is a source of inequity within the national system, where provincial schemes and special and differential regimes coexist, each with its own rules and different generosity of benefits. The achievements of the pension system in terms of coverage and adequacy have impacted costs. In 2020, public spending on pensions reached almost 12 percent of GDP, similar to that of developed countries where population aging is considerably higher. In this context, policy options presented in this paper seek to redefine the objectives of the system, seeking greater equity and sustainability. Based on this premise, the document explores the benefits of redesigning the system using a two-pillar model, id est a universal and basic benefit related to the protection against the risk of ending up in a situation of poverty plus a contributory scheme, proportional to the contribution made by workers during their employment history. Addressing the coverage issue by incorporating this dimension would not only improve equity of contributions and benefits, but also generate incentives to extend the working life of older adults. At the same time, a strategy that harmonizes rules across different schemes, eliminates inequities and management issues, and focuses on the beneficiary -and not on the benefit- as the center of the system, would bring the model closer to a more equitable and sustainable system