The ABC of pensions (Part 3)

It is no exaggeration to say that public pension programs are in crisis almost everywhere in the world. On the one hand, diminishing returns on investments, particularly fixed income, prevent many funds from achieving returns that can sustain the pension program. This is arguably a cyclical difficulty, and getting out of it will depend on improving investment prospects and rates of return. And that, too, remains to be seen.

But the future of pensions depends on reforming the very heart of the system. Structural changes in demographic variables and changes in the labor culture impose an uncertain future on traditional pension programs. Unless, as many countries have been doing little by little, fundamental reforms of the pension model are undertaken. These reforms, which end up making retirement more expensive for citizens, have not had a minor political cost.

In many countries, including Panama, the system, in addition to having a poor financial performance and suffering from the same demographic impacts, has for years responded to political interests where the distortion of pensions is greater and the impact of a collapse of the system is more serious.

Against this difficult global backdrop, a variety of concrete measures are being tried. Some are aimed at mitigating the immediate impact of the reduction in the value of present and future pensions. And others, to adopt and formalize a program to stabilize the system in the medium term and eliminate distortions.

An unavoidable and central issue in the reforms is the modification of the variables that generate the pension. Thus, no matter what they do, contributors must contribute more, for a greater number of years and retire at a higher age.