Bolivia to nationalise pensions

The Bolivian Government will nationalise the privately run pension system, with new pension reform law due to be implemented half way through this year. It follows reform from its southern neighbour, Argentina, which nationalised its $24 billion pension fund industry two years ago.On December 10, President Evo Morales signed a new pension reform law, which was approved by the Bolivian Parliament on December 3, that lowers the retirement age, nationalises the privately run pension system and extends pension protection to the informal workers’ sector.

Retirement age will be lowered from 65 to 58 for both men and women. Miners will be eligible to retire at age 56, and mothers with at least three children at age 55.

A Towers Watson report on the reform says the reduction runs contrary to the global trend to raise retirement ages, but the government says that Bolivia is a special case, as many Bolivians work in harsh manual jobs, and life expectancy is only 62 years for men and 65 for women.

The management of the current pension system of individual accounts, which was created in 1997 to replace the state pay-as-you-go system, (for more information see this World Bank paper) will be nationalised. A new state entity, Gestora Publica de la Seguridad Social de Largo Plazo, will administer the pension funds, which are currently run by two transcontinental banks – Switzerland’s Zurich Financial Services AG, and Prevision SA, managed by Spain’s Banco Bilbao Vizcaya Argentaria SA.

Workers will continue to pay 12.2 per cent of their earnings into the individual accounts.

A Solidarity Fund will also be set up to guarantee minimum levels of pension to all workers, based on years of contributions. The fund is intended to provide pensions, for the first time, to the 60 per cent of Bolivians who work in the informal sector and who make voluntary contributions of their own for at least 10 years. The fund will also be used to make up shortfalls in benefits provided to salaried workers under the individual account system.

The Solidarity Fund will be financed by payroll taxes of 3 per cent for employers and 0.5 per cent for employees, with an additional percentage (not yet specified) for higher-income employees.

According to Towers Watson, Bolivia’s Federation of Private Employers lobbied against the reforms, claiming the new system was financially unsustainable, while the Bolivia workers’ federation (COB) fully supported the reforms. The nationalisation of the pension system follows a series of nationalisations of utility companies since President Morales came to power in 2006.

Changes in the official retirement ages under social security will affect workforce planning for employers, as most workers are expected to retire when they reach those ages. The Solidarity Fund payroll taxes will increase the social tax burden for employers, the report says.