Aging: Bittersweet News for Latin America

Latin America is a young region, but youth is not eternal. Currently, some 8 percent of Latin Americans are over the age of 65, compared to nearly 20 percent in Europe. By 2050, however, the region will reach European ratios and by the end of the century, the share of people over 65 will exceed 30 percent.

Aging is, however, fundamentally a positive occurrence, but not everything is good news. First, it is a sign that Latin Americans are living and will live longer, healthier lives. But also, as the European experience of recent decades shows, aging poses challenges to the sustainability of social protection systems.

The challenges of aging become more severe in Latin America as a result of structural job informality in the region, which reaches approximately 60% of workers. And the outcomes are worrisome: Only 4 out of 10 workers contribute to social security. Job informality reduces the taxpayer base, equivalent to the aging that will take place over the next 40 years. Put differently, Latin America has more potential workers to finance social protection for the elderly than Europe, but this advantage cannot be realized due to informal employment.

The informality challenge adds to the contemporary phenomenon of accelerated technological change. Increasing job automation could strike an additional blow to the already unstable careers of Latin American workers, especially those performing routine tasks, making it more difficult to reach the minimum years of contribution to access a pension.

But new technologies can also have positive impacts on social protection systems. The emergence of the use of digital platforms (from passenger and goods transport services to e-commerce) may be an opportunity to increase job formality. In fact, according to the CAF Survey, approximately 1 in 10 Latin American workers had provided some type of service through a digital platform in the last month. In turn, the proportion of workers making contributions is higher among those who provide services for digital platforms than those who do not and are self-employed.

In terms of pensions, one of the main welfare variables for the elderly, the region has made significant strides in recent years, especially thanks to the expansion of non-contributory pension programs. Between 2000 and 2016, the number of countries with non-contributory pension systems skyrocketed from 7 to 26 and in at least ten countries coverage rose by more than 20 percentage points. Despite these advances, in most countries there are still significant proportions of the elderly population that do not collect a pension, and non-contributory programs need to be further expanded. Some countries should also raise the amounts in these programs, so that they effectively avoid poverty among their beneficiaries.

In the area of health, most countries show significant gaps in service coverage and financial protection compared to developed countries. Many of these gaps could be closed by increasing the efficiency levels of health spending. This requires progress in integrating the very highly-fragmented insurance and service provision systems. With regard to long-term care, with certain exceptions, countries have not developed systematic public policies and public spending in this area is negligible. The challenge here is to gradually implement care policies, which should be supported by increasing fiscal resources.

To some extent, aging will bring about challenges for all Latin American countries. Potential reforms to ensure social protection for the elderly should be built on broad consensus. This is key to quantify, measure and communicate existing challenges, and adopt an approach that consolidates the political sustainability of reforms and combines instruments such as years and amounts of contributions, replacement/benefit rates, or the expansion of the taxpayer base, and that also compensates potential losers.

While elderly protection needs will grow, the region has other demands for social assistance that cannot be neglected, such as high poverty among children and young people. Social protection needs for the elderly should be compatible with care for other vulnerable social and age groups. While youth is not eternal, we must protect it because it impacts the quality of life in adulthood.