Uruguay : options for pension reform
Kane, Cheikh T.
This paper provides a diagnostic of the Uruguayan pension system and lays down main options for reform. The sustainability of the current pension system and the fiscal impact of reform options are assessed using the present value of pension liabilities net of contributions (1995-2075) as a common indicator. One important finding is that retaining a pay-as-you-go system while achieving fiscal balance would require significant adjustments in the basic parameters such as the replacement rate, the retirement age, and the indexing mechanism. More importantly, even after adjusting these parameters, there are structural problems that would prevail under a pay-as-you-go scheme, such as high contribution rates and evasion. For this reason the paper offers two other alternatives of shifting to a capitalization scheme, or adopting a multipillar system. The fiscal implications of these two options are analyzed while emphasizing the different implications from a redistribution perspective.
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