Social Security in the Americas

Subregional Differences across the Americas

The Americas are often divided by analysts into subregions, which present a certain homogeneity and common challenges. Such possible subdivisions include: the Southern Cone and Brazil; the Andean Region; the Hispanic Central America and Mexico; the Caribbean; and the US/Canada. Overall, there are large countries with strong domestic markets that provide economic dynamism for the whole region, such as the US and Brazil, and smaller countries with open economies and high vulnerability to external shocks, such as most countries of Central America and the Caribbean. The outcomes of colonial history and modern development have not been the same throughout the Americas.

The Spanish- and Portuguese-speaking parts of the Americas, have, for the most of the 20th century, pursued a cyclical growth model which generated simultaneous income concentration and actually expanded precarious and informal employment for most of the population. In contrast, in the English- and French-speaking areas, economic development usually resulted in less social heterogeneity than in Latin America. Beyond this historical and developmental background, the role attached to the State, and hence the options regarding the introduction of Social Protection, have been different in these two broad areas.

Economic and Financial Crisis and labour market policies

The recent economic and financial crisis has strongly impacted the Region and once more demonstrated the need to improve and develop social protection as a condition for reaching different outcomes than had been harvested in the past. One important lesson is the need to introduce policies to deal with the risk of unemployment where no such policies exist. This is the case for most countries in the region, as today only 10 countries operate an unemployment scheme, covering only five per cent of unemployed Latin American and Caribbean workers. The countries that operate unemployment schemes need to improve coverage and increase coordination with labour market policies.

This means not only unemployment insurance schemes but also employment services, public works, training and requalification, as well as professional education. Most countries in the region improved their policies in this respect in 2009 and 2010, by changing the eligibility criteria and the duration or number of instalments paid to individuals in those sectors and geographical regions disproportionately affected by the crisis. Simultaneously, the Region has been reminded once again of the urgent need for policies to react swiftly to natural disasters, as demonstrated by the earthquakes in Haiti and Chile in recent years, as well as recurrent floods, droughts, yearly hurricanes and other climatic disasters.

The role of the public and private sectors in providing pensions

The Americas Region has been one of the most innovative in terms of social protection developments, be it in terms of contributory principles, social assistance or universal benefit programmes. In the 1980s, Chile pioneered a sequence of radical social security reforms in pensions and health provision, guided by the general principles of individualizing risks, privatizing administration, funding schemes and transforming the State into the supervisor of the resulting insurance industries. The role of the State as provider of benefits and services was authorized only to cover the very poor by means of a rather meagre “social safety net”. During the 1990s, several countries in the Spanish-speaking Americas followed the Chilean example, implementing pension, health, employment injury and unemployment insurance reforms guided by these same principles, which had first been developed mainly by US universities and think-tanks and subsequently promoted by multilateral financial institutions.

Since the early 2000s, some of the shortcomings of these reforms have become evident, triggering new reforms to cope with the inadequate levels of coverage among active workers and low pension uptake as well as low real values of the benefits delivered by these new schemes. Institutional fragmentation and the concentrated market increased operational costs and revealed that higher standards need to be achieved when supervising such industries.

Thus countries which had introduced radical reforms in the previous decades implemented policies to tackle those problems, either by: reintroducing a role for the State as provider of basic pensions and services; rebalancing the weight of public and private pensions; designing public benefits as solidarity or universal benefits; strengthening the supervision of private markets; introducing policies to reverse the loss of coverage under the new structures; and/or, as a result of the economic crisis of the 1980s and 90s, in Bolivia and Argentina, reassigning the administration of the mandatory pension pillar to the State, and in the case of Argentina even eliminating individual accounts, returning to a defined benefit scheme, and establishing policies to revert the loss of coverage and the prospective of higher old-age poverty over the next decades. It is noteworthy that no case was a simple “return” to the situation prior to the radical reforms – mostly because these had lost their credibility under hyperinflation, as a result of fragmentation and bad management in the 1970s and 80s. In the meantime, the two largest countries of the Region – the United States (1983) and Brazil (1998, 2003) – did not implement structural pension reforms in those decades but made parametric adjustments to their classical social insurance schemes and strengthened supplementary defined contribution pillars, which are privately managed and fully funded pillars.

Innovative approaches: Poverty alleviation through cash transfer schemes

There are two main positive innovations to note in terms of non-contributory programmes. First, innovative cash transfer programmes (conditional or not) have evolved, departing from the rather simple “safety nets” of the 90s to broaden coverage, connect beneficiaries with public services and deploy supplementary policies, with the aim of (re)building human and social capital and breaking the intergenerational transmission cycle of poverty. These programmes are mainly cash transfers targeted at poor families with children, conditional on school attendance and/or the fulfilment of a health service agenda (i.e. vaccinations and medical exams).

The introduction of such conditional programmes is a move in the right direction, given that poverty rates of children and adolescents are higher than for any other population group in almost every country in the region. The two pioneer programmes were the “Bolsa Família” (Brazil, first programmes in 1995) and the “Progresa-Oportunidades” (Mexico, 1997). Currently most Latin American countries run similar schemes (i.e. “Bono Juancito Pinto” targeting children and “Bono Juana Azurduy” for pregnant women, both in Bolivia, “Tekoporã” in Paraguay, “Familias en Acción” in Colombia, “Bono de Desarrollo Humano“ in Ecuador etc.). A direct cash transfer is made to each covered family (often to the mother of the children by means of a bank account), which replaces the more clientelistic approach of distributing food baskets or “milk tickets” and can have the effect of empowering beneficiaries.

Evaluation of these new programmes has also shown that a high level of precision has been achieved regarding the targeting mechanisms and that the impacts on poverty alleviation and inequality reduction have been significant. The impacts tend to be proportional to the programme´s coverage and expenditure. Typically, Latin American countries spend between 0.2 and 0.5 per cent of their GDP on those programmes which cover between 10 to 25 per cent of the population (in Ecuador more than 44 per cent). A particularly interesting evolution is the introduction of the “Asignación Universal por Hijo ( AUH)” in Argentina (2009), which strongly integrates the AUH with the “Asignación Familiar” contributory benefit and is administered by the ANSES social insurance institution. This was projected to universalize coverage of child benefits, with an expenditure of 0.9 per cent of GDP, and to have a major impact on child and youth poverty in that country. Uruguay has also greatly expanded the coverage of the “Asignación Familiar” child benefit by means of the “Plan Equidad” (2007), both under the administration of the Banco de Previsión Social (BPS) social insurance institution. This coordination between conditional cash transfers and contributory family benefits still does not exist in other countries (i.e. in Brazil).

The second innovation is that non-contributory or highly subsidized pensions have now been introduced in several countries. These are mostly designed as targeted social assistance benefits for the elderly, such as the “Bono de Desarrollo Humano” in Ecuador, the “Programa 65 y Más” in Mexico, the “Régimen No-Contributivo” in Costa Rica, the “Benefício de Prestação Continuada” in Brazil, the “Pensiones Asistenciales por Vejez, Invalidez o para Madres de Siete Hijos” in Argentina, the “Pensión por Vejez” in Uruguay or the “Pensión 65” in Peru.

Apart from assistential (poverty-targeted) non-contributory pensions, there are also three innovative cases, namely the “Renta Dignidad” in Bolivia, the “Previdência Rural” in Brazil and the “Pensión Solidaria” in Chile. The “Renta Dignidad” is a basic old-age benefit (universal and non-contributory) for all Bolivians aged 60 or more, funded out of a tax on oil and gas produced in Bolivia and from the revenues of a share of equities from a set of public and privatized Bolivian companies. The Brazilian “Previdência Rural” extends basic pensions and further monetary benefits to self-employed small farmers and fishermen, as well as their non-remunerated family members, whose contribution is levied on the production sold and has to be paid by the purchaser. Since 2008, the “Pensión Solidaria por Vejez/Invalidez” in Chile has replaced the former “Pensión Asistencial" and broadly targets those aged 65 or more living without a benefit and belonging to the 60 per cent poorest Chileans. If the elderly person receives a very low contributory benefit, which results from a scattered track of contributions, then an “Aporte Previsional Solidario” tops up the contributory benefit. Both the “Pension Solidaria” and the “Aporte Previsional Solidario” are funded by General Taxation.

Besides these innovations, it is important to note that Chile and Uruguay have introduced rules aimed at compensating women for maternity and for lower contribution densities, a strong departure from previous negative gender discrimination in social security reforms in the Americas. Self-employed workers are now mandatorily covered and policies have been put in place to formalize domestic employment in a number of countries. These efforts to increase coverage have also included the setting up of very interesting “social security education programmes” throughout the region, both targeted at children in school and adults in the labour market, in order to increase awareness of rights and of the importance of being affiliated to social security schemes.

Challenges for Social Security Extension in the Americas

Horizontal and Vertical Extension of Social Security

Despite the important role these advances play in demonstrating that the introduction of a “Social Protection Floor” is possible, the Region faces several challenges in extending social protection. The first is certainly the need to continue the expansion of coverage – be it horizontally by augmenting the number of persons covered, or vertically by increasing the scope of benefits and social risks covered. In 2006, the Ministers of Labour and Social Protection in the Americas signed the Hemispheric Decent Work Agenda, which includes the goal of expanding social protection coverage by 20 per cent by 2015. The good news is that pension and health coverage figures for urban occupied workers have grown from 54.3 per cent (2000) to 67.0 per cent (2012). If we consider only wage earners, coverage increased from 71.7 per cent (2000) to 81.1 per cent (2012) while for non-wage earners it increased even more from 24 per cent (2000) to 43.2 per cent (2012). The latter is especially remarkable as this group is most difficult to reach through traditional social security systems. Fortunately, this growth in coverage sharply contrasts with the falling coverage rates registered during the previous two decades. However, the evaluation of coverage, as discussed above, must include not only official health and pension programmes, but also progress regarding the innovative and non-contributory programmes which have made a contribution to improving social indicators in recent years. Finally, it is important to note that probably the largest single coverage expansion associated with a social protection reform in the Americas during this period will be brought about by the US Health Reform of 2010, which intends to include an estimated 50 million persons. During the recent decade, efforts all over the Americas to increase the network of bilateral and multilateral social security agreements to cover migrant workers have yielded improvements in coverage, by preventing formal migrants from losing expected or already acquired entitlements.

The coordination of different social security schemes

Despite recent improvements, another challenge for Latin American social security systems is to increase coordination and even integration between major social policies and programmes. It will be essential to coordinate contributory with non-contributory system and to link social protection with other policies, such as active and passive labour market policies. Argentina and Uruguay provide compelling examples of an integrated administration of family benefit programmes. Several other initiatives have also emerged in recent years, contributing to an ongoing learning process, i.e. the “Chile Protege” (Chile), the “Estrategia Vivir Mejor” (Mexico), and the “Sistema Unificado de Assistência Social – SUAS” (Brazil).

Important technological and managerial progress in social protection policies has also been registered throughout the Americas. This progress needs to be nurtured. Social security administrations have been professionalized and upgraded and there has been an increase in: the supply of remote communication channels (with the decreasing cost of phone and internet services); the development of creative partnerships linking attention and delivery of benefits and services; and, as a result, an increase in the efficiency and accountability of the systems in place. Progress has been supported by the general diffusion of the values of professionalism and management efficiency in the public sector, as well as by the drop in information technology costs. Technological progress, when applied to database management and social security revenue collection, can further increase compliance and improve efforts in the fight against fraud. The safety and privacy of personal data stored by social protection programs in LAC is an additional topic of attention.

Demographic change

Last but not least, the ageing process clearly affects the Americas, although individual countries are at different stages in the transition process. The general trend in the Americas has been a sequential decline in infant mortality, followed by a simultaneous increase in life expectancy and drop in fecundity. This pattern generated populations that have gone from being primarily youthful to ones with increasingly ageing populations. In the Americas, the second phase has evolved much faster than in Western Europe, where the ageing process started in the 19th century. Hence, the success of public policies, increased access to sanitation, potable water, health care, education and increased remunerations, have been among the triggers and accelerators of the ageing process in the Americas. The demographic transition in the region will certainly change the pattern of demand regarding health services and social protection over the next decades. Policies to support motherhood will need to allow women to combine maternity and participation in the labour market. Employment injury compensation and prevention schemes need to adapt to a higher risk of work injury and occupational disease, generated as the working population ages and as dependency rates rise. Employment policies in general and unemployment protection policies in particular will also need to take into account the increasing age of the workforce. The decrease of the number of children on the other hand might allow universalizing child guarantees in the future.

A lot has already been written on the effect of the demographic transition on the financial sustainability of social security schemes and the adaptations which will be needed. However, when reacting to this demographic challenge, countries in the Americas should avoid repeating the costly radical reforms that took place in the 1980s and 90s, which did not deliver all their promises and actually restrained coverage. The adaptation of contributory and non-contributory schemes to an older population can be made gradually and in steps, as the ageing process advances. Besides, policies which allow elderly to stay longer in the labour market if they wish so, such as flexible work hours, should also be considered. Reforms should also take care not to raise inequity by increasing the demand of systems with low coverage for general taxation funds. ILO-Conventions provide an important reference, especially Convention 102, which was ratified by Brazil in 2009,Uruguay in 2010 and Honduras in 2012 and is currently under review for implementation in several parliaments in Latin America (e.g. Argentina) or under consideration by the governments of a number of countries (e.g. Paraguay).