It makes no economic or social sense to legislate to establish a pension distribution system that will not work and, therefore, would need to be modified in a short time, said the economist Miguel Collado.
Executive Vice President of Regional Center for Sustainable Economic Strategies (CREES) explained that a pay-as-you-go system, the money contributed by active workers is destined to cover the pensions of retirees and is not capitalized in a single accountas is the case today.
International experience shows that, by their nature, pay-as-you-go systems are not sustainable, because there are more and more retirees and fewer active workers who can contribute for the pensions of the former.
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Current efforts should be directed at perfecting what is established in the Law 87-01 and to carry out structural reforms to eliminate distortions that impede the development of pensions in the country.
He believes that decision-makers from Congress and the Executive Power have the opportunity, from the point of view of public policies, to guarantee better pensions through a deepening of reform of the year 2001as well as through other structural reforms that improve the investment climate, productivity and competitiveness in the country.
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It states that if a bill proposes to change the individual capitalization system for a pay-as-you-go, the obligatory question is how it will be financed each year.
Informality is a major challenge for any pension system, whether pay-as-you-go or individually funded, he said.
With high levels of informality and unemployment and underemployment, it is impossible for a pension system to guarantee high replacement rates in the future, he maintains.
