Sustainability Challenges of Social Protection for the Elderly in Argentina

An aging population, informal jobs and technological changes pose challenges for improving coverage, quality and fiscal sustainability of social protection in Latin America, particularly Argentina. The diagnosis for Argentina, as well as some recommendations regarding the design of public policies to face these challenges, were addressed today at an event organized by CAF, in a local presentation of the conclusions of the 2020 Economy and Development Report (EDR).

The key messages of the report include that the proportion of adults over 65 years of age will double in the next 20–30 years in Latin America, from 8% in 2020 to 17.5% in 2050. In the case of Argentina, this rate will increase from 11.4% to 17.3% over the same period. In addition to the demographic challenge, there are factors in the labor market, particularly informality, which accounts for 63% of active population in the region and 50% in Argentina.

In terms of social security coverage, 93% of those over 65 years of age receive a pension or retirement allowance in Argentina, the country with the third largest social security coverage, after Bolivia and Trinidad and Tobago. Non-contributory pensions in 2018 more than tripled the poverty line of US$ 4/day. On the other hand, contributory pensions had the highest replacement rates in the region (close to 70% for wage earners compared to an average 59% in OECD countries). These favorable indicators of coverage and sufficiency are paid with high public expenditure on pensions. In 2017, total public sector spending on pensions reached 10.7% of GDP, ranking with Brazil among the highest in the world among countries with similar demographic profiles.

“The main challenges of Argentina’s social security system are not in the coverage and sufficiency, as it is actually one of the best performers in the region, but in the financial sustainability of a very high public spending and in the high fragmentation of the system,” said Guillermo Alves, Senior Economist of the Socioeconomic Research Directorate and co-editor of the Report.

In terms of health services coverage, Argentina has an effective health coverage rate of 79.4%, higher than the regional average (74%) but below the average in OECD countries (87%). As for the financial protection offered by the healthcare system, 16.9% Argentina’s population remains unprotected, above the regional (8%) and OECD (6.6%) averages.

In terms of fiscal sustainability, the report shows that the joint financial deficit of retirement allowances and pensions (considering only the ANSES) and healthcare (public system and social security) in Argentina stood in 2017 at 5.4% of GDP. Based on the aging rate of the population, this deficit will grow significantly by 2065, reaching almost 10% of GDP. In terms of financing, the country does not have much room to cover these deficits with higher tax collection, and thus, its most viable alternatives would be curbing expenditures on contributory pensions through parametric reforms and greater collection of contributory systems through a higher rate of formal labor.

The free online meeting was attended by national and provincial authorities, as well as technical experts in the field from different organizations, including: Claudio Moroni, Minister of Labor, Employment and Social Security; Christian Asinelli, Undersecretary of International Financial Relations for Development of the Secretariat for Strategic Affairs; Osvaldo Giordano, Minister of Finance of the province of Córdoba, and Santiago Fraschina, Secretary General of ANSES. The panel will also featured Mónica Panadeiros, Senior Economist at FIEL, and Rafael Rofman, Principal Researcher for Economic Development and Social Protection at CIPPEC. CAF representation was composed of: Santiago Rojas, Director-Representative in Argentina; Guillermo Alves, Chief Economist, and Diego Barril, Country Economist.