By Ronin 360
In Peru, reaching old age is today an experience marked by precariousness. About half of those over 65 (46%) do not receive any pension. And among those who do have one, most depend on programs such as Pension 65, whose transfer is not enough to cover the basic food basket that defines the extreme poverty line.
In other words: old age in Peru is not synonymous with retirement, but to prolong working life as far as the body endures, or depending on the help of children, brothers or nephews.
That reality is already hard today, but it will be much more in the future. Demographic photography is clear: by 2070, when the current members of generation Z are over 65 years old, the age dependence ratio (which measures how many older there are regarding the population of working age) will go from current 15% to almost 40%.
In absolute figures, while we have about 3.4 million older adults, within 45 years will be about 9.5 million. And the most alarming: more than 80% of them will not have a pension.
Family network in extinction
The drama is aggravated by a parallel phenomenon: the collapse of family networks as support in old age. Our older adults today have an average between 4 and 5 children, which allows – although not always – a certain level of intergenerational aid.
But by 2070, major cohorts will barely have between 1 and 2 children, with a growing proportion of people without offspring. In a country with low pension coverage, this reduction of the family network is equivalent to removing the last security network. And the paradox will be brutal: we will live more years thanks to the advances of medicine, but not so healthy, with less income and family support towards the end of our day.
The root of why the pension system does not work is in the structural deficiencies of our system. Only three out of 10 workers regularly contribute to a pension fund. On average, a Peruvian quotes just 6 of the 30 to 40 years that lasts his working life. The cause is evident: the constant transit between formality and informality. To this is added the rules that promote retreats.
The famous 95.5% withdrawal at 65 made the funds into simple forced savings accounts. To this are added extraordinary retreats authorized by Congress: seven so far. As a consequence, the funds have lost about 40% of their value with respect to their historical maximums, and to continue the trend could disappear, for the most part, in the next decade.
Liberal mirage
However, many young people from generation Z – not a few adults – believe that the solution is to eliminate mandatory contributions.
The problem is that the future will not be the same, it will be worse. Today, with all its defects, the system still covers about 30% of workers and has allowed more than one million people to access a pension in the private system and another million in the public system.
In addition, there are social programs such as Pension 65 that serve almost a million older adults. But by 2070, with a largest population four times larger, an extreme voluntary or liberal scheme would leave almost 8 million people outdoor. Without pensions, without sufficient children who hold them and with a life expectancy that will already exceed 88 years.
Do not impatient, they will become old soon
Generation Z is at risk of facing the worst old age in Peruvian history. Longeva, more numerous and more unprotected than the previous ones, said Isaac Foinquinos, Ronin chief economist.
Foinquinos said that believing that the solution is to eliminate mandatory contributions is a dangerous mirage. He explained that today, with all its defects, the Peruvian pension system still guarantees pensions (low, for our low labor productivity) to about 2 million people.
“Tomorrow, without reforms, more than 7 million will arrive in old people with nothing,” he said.
For the economist, the choice is clear: either we now build a sustainable system, with mandatory, but intelligent contributions, with minimal pensions and with a real shielding against populism, or we resign ourselves to a future of mass poverty in old age.
“History is putting us against the wall. Generation Z does not ask for a solution: it demands it, because its destiny depends on what we do today,” he concluded.
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