metadata: authors: 0: author: James, Estelle
1: author: Edwards, Alejandra Cox
2: author: Wong, Rebe
count: Mexico,Chile,Argentina
docna: 0: docna: The gender impact of pension reform : a
            cross-country analysis
docty: Policy Research Working Paper
subtopic: Pensions & Retirement Systems,Labor Markets,Gender and Development,Inequality,Rural Labor Markets
teratopic: Gender
abstracts: cdata!: Pension systems may have a different
            impact on gender because women are less likely than men to
            work in formal labor markets and earn lower wages when they
            do. Recent multipillar pension reforms tighten the link
            between payroll contributions and benefits, leading critics
            to argue that they will hurt women. In contrast, supporters
            of these reforms argue that it will help women by the
            removal of distortions that favored men and the better
            targeted redistributions in the new systems. To test these
            conflicting claims and to analyze more generally the gender
            effect of alternative pension systems, the authors examine
            the differential impact of the new and old systems in three
            Latin American countries-Argentina, Chile, and Mexico. Based
            on household survey data, they simulate the wage and
            employment histories of representative men and women, the
            pensions they are likely to generate under the new and old
            rules, and the relative gains or losses of men and women
            because of the reform. The authors find that women do
            accumulate private annuities that are only 30-40 percent
            those of men in the new systems. But this effect is
            mitigated by sharp targeting of the new public pillars
            toward low earners, many of whom are women, and by
            restrictions on payouts from the private pillars,
            particularly joint annuity requirements. As a result of
            these transfers, total lifetime retirement benefits for
            women reach 60-80 percent those of men, and for "full
            career" women they equal or exceed benefits of men.
            Also as a result, women are the biggest gainers from the
            pension reform. For women who receive these transfers,
            female/male ratios of lifetime benefits in the new systems
            exceed those in the old systems in all three countries.
            Private intra-household transfers from husband to wife in
            the form of joint annuities play the largest role.
geo_reg_key: 119228,517191
repnme: repnme: The gender impact of pension reform : a
            cross-country analysis
display_title: The gender impact of pension reform
            : a cross-country analysis
listing_relative_url: /research/2003/06/2384818/gender-impact-pension-reform-cross-country-analysis
topicv3: Labor Markets m1326488 855,Poverty m1326687 695,Gender m1327621 615,Retirement m1504007 2896,Labor Force Participation m1504050 2746
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Gender
origu: Gender and Development (PRMGE)
no_of_pages: 81
model_extractions: POLICY **RESEARCH WORKING PAPER** 3074

# Abstract

Pension systems may have a different impact on gender because women are less likely than men to work in formal labor markets and earn lower wages when they do. Recent multipillar pension reforms tighten the link between payroll contributions and benefits, leading critics to argue that they will hurt women. In contrast, supporters of these reforms argue that **it** will help women by the removal of distortions that favored men and the better targeted redistributions in the new systems.

To test these conflicting claims and to analyze more generally the gender effect of alternative pension systems, James, Edwards, and Wong examine the differential impact of the new and old systems in three Latin American countries-Argentina, Chile, and Mexico. Based on household survey data, they simulate the wage and employment histories of representative men and women, the pensions they are likely to generate under the new and old rules, and the relative gains or losses of men and women because of the reform.

The authors find that women do accumulate private annuities that are only 30-40 percent those of men in the new systems. But this effect is mitigated by sharp targeting of the new public pillars toward low earners, many of whom are women, and by restrictions on payouts from the private pillars, particularly joint annuity requirements. As a result of these transfers, total lifetime retirement benefits for women reach 60-80 percent those of men, and for "full career" women they equal or exceed benefits of men. Also as a result, women are the biggest gainers from the pension reform. For women who receive these transfers, female/male ratios of lifetime benefits in the new systems exceed those in the old systems in all three countries. Private intra-household transfers from husband to wife in the form of joint annuities play the largest role.

This paper is a product of the Gender Division, Poverty Reduction and Economic Management Network. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Max Jira Ponglumjeak, roomMC4-426, telephone 202-473-1060, fax202-522-3237, emailaddress mponglumjeak@worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. June 2003. (77 pages) _The Policy Research Working Paper Series disseminates the_ **_findings_** _of work_ **_in_** _progress to encourage the exchange of ideas about development issues. An objective of the series_ **_is to_** _get the findings out qutckly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent._
**The Gender Impact of Pension Reform: A Cross-Country Analysis***

by Estelle James (Urban Institute), Alejandra Cox Edwards (California State University, Long Beach) and Rebeca Wong (University of Maryland)

> *This project was supported ,by the Economics and Gender Trust Fund at the World

> Bank, for which we express our appreciation. An earlier version was presented at the World Bank July 18, 2002.
I
# **The Gender Impact of Pension Reform:** A **Cross-Country Analysis**

> The majority of old people are women and poverty among the old is concentrated among very old women. Therefore, in designing a pension system and pension reform it

> is essential to take account of the gender impact. Employment-based old age systems pose a problem in this regard, since women are less likely than men to work in formal labor markets and earn lower wages when they do. Recent multi-pillar pension reforms include a defined contribution (DC) pillar that tightens the link between payroll contributions and benefits, which leads critics to argue that they will fail to protect

> women. In contrast, supporters of these reforms argue that multi-pillar systems remove

> distortions that favored men and permit a more targeted public pillar that will help

> women. They hypothesize separating the redistributive and earnings-related parts of the systems into two pillars-one DC and one DB-makes the new DB smaller, more transparent and more redistributive toward low earners such as women.

In order to test these conflicting claims about multi-pillar reforms, this paper examines the differential impact on the two genders of the new and old systems in three Latin American countries-Chile, Argentina and Mexico. Based on household survey data, we simulate the wage and employment histories of representative men and women, and the pensions that these are likely to generate under the new and old rules.' Our basic intent is to examine the gender impact of alternative pension system designs, with policy implications that would apply more broadly. While both efficiency and equity considerations are involved, our emphasis is on relative rather than absolute changes, on distributional rather than efficiency effects.

We ask four basic questions:

1. What are the relative monthly and lifetime benefits of men versus women under the new systems?

2. What are the relative gains or losses of men versus women, due to the shift from the old to the new systems?

3. Which sub-groups within each gender benefit or lose the most from the reform and from redistributions under the new systems?

4. What are the key policy choices that determine these gender outcomes?

**2**
Most basically: _We find that women do indeed accumulate_<sup>_retirement fundsand_</sup> _private annuities that are only 30-40% those of_<sup>_men,fromthe DC pillar of themulti-_</sup> _pillar systems. However, this effect is mitigated_<sup>_bytargeting of the new public pillars_</sup> _toward low earners, many of whom are women, and_<sup>_by restrictions on payout provisions,_</sup> _particularly joint annuity requirements._<sup>_Womenarethemajorrecipientsof_</sup> _redistributions from these two sources. As a_<sup>_result,total lifetime retirement benefits for_</sup> _women reach 60-80% of those for men and for_<sup>_'full career" married womenthey equal_</sup> _or exceed benefits of men. Also as a result,_<sup>_womenare thebiggest gainers fromthe_</sup> _pension reform. For women who receive these_<sup>_transfers, female/male ratios of lifetime_</sup> _benefits in the new systems exceed those in_<sup>_the old systems in all three countries. Private_</sup> _intra-household transfers through joint annuities,_<sup>_whicharerequired orstrongly_</sup> _encouraged, play the largest role in equalizing_<sup>_gender ratios._</sup> Different sub-groups within each gender<sup>benefitdifferentiallyfromthenew</sup> systems. Low earners of both genders<sup>benefitdisproportionatelyfromtargeted</sup> redistributions in all three countries. Married<sup>women whoworkinthe laborforcegain</sup> substantially from the joint annuity, which<sup>they getinaddition totheirown pension.In</sup> Chile and Mexico, those who work the<sup>most gain themost. But in Argentinawomen who</sup> specialize in home production are subsidized<sup>throughthepublicpillar.Womenare</sup> allowed to retire early, a "privilege" that<sup>cutsthe monthly pensionsof thosewho doso</sup> more than it did in the old system. Correspondingly,<sup>thosewhoretirelatergeta larger</sup> reward in the new system. Women who<sup>livethough periodsof prolongedslow growth</sup> receive more protection but future cohorts of<sup>women willreceivelessprotection against</sup> gender inequality, under present indexation<sup>rules.These differencesmean thatgender-</sup> based equity crosscuts with other criteria<sup>forequity,sopensionreformersmustthink</sup> about which women and families have<sup>priorityneedsforredistributions. Moreover,</sup> transfers and taxes become incentives,<sup>sopolicy-makersmust thinkaboutwhich</sup> behaviors they want to encourage as efficient.

These differential outcomes stem from<sup>four major designfeatures that we discuss</sup> in detail:

- Relative retirement ages for men and women;

- Targeting and eligibility conditions for the<sup>public pillar;</sup>

3
- Indexation provisions; and

- Restrictions on payouts--in particular, survivors' benefits and joint annuity requirements.

These are the design features upon which policy-makers concerned with gender impact should focus.

Part I starts with an outline of how men and women typically differ, and how alternative pension systems might therefore be expected to affect them differentially. Part II describes the multi-pillar reforms in Latin America, with particular reference to provisions that have differential gender impacts, and summarizes our methodology. Part m simulates expected annuities for men and women from the new private pillar. Parts IV and V analyze how this is modified by public transfers and by annuitization rules that create private transfers, and discuss the different approaches to and trade-offs between equality and work incentives. Part VI evaluates which groups gained and lost the most from the shift to a new system. Part VII briefly compares the outcomes in Latin America with those in the transition economies, where the policy choices have been quite different. The Conclusion points to key design features that determine the gender impact of pension reform, applicable to other regions as well.

This paper focuses on women who are in the formal social security system. Many women, particularly in rural areas, are not in the system at all. While some are protected by the joint annuity, many members of this group are dependent on the extended family for support, supplemented by social assistance. How non-contributory schemes can best be structured to benefit those who need it-without incurring high costs or tax evasion and crowding out personal saving or family support-is a vital question that should be the topic of another study.

# **I. Why Do Pension Systems and Pension Reforms Have a Gender Impact?**

Most public pension programs-both the traditional DB and the newer multipillar plans-- are contributory, based heavily on labor market experience. Workers pay payroll taxes and receive benefits that depend on wage history, years of work, or more

**4**
directly on their contributions.<sup>2</sup> These social security systems have developed for a variety of reasons:

- If benefits are linked to earnings and contributions, workers may be willing to contribute over and above the taxes they would otherwise pay, since they perceive this as a payment for private services that are earmarked for them rather than a tax for the provision of public goods.

- O They may be less likely to evade these contributions, a consideration which is particularly important in developing countries where tax enforcement mechanisms are weak.

- Payroll taxes are relatively easy to collect, particularly from large employers.

- O Pensions are viewed as a source of income that replaces part of the wage, when old age makes work difficult or less productive, hence a connection between pension benefits and wages seems logical.

However, these contributory employment-based systems pose a problem for women, who are less likely to have worked and contributed for many years, have earned lower wages when working, and are likely to outlive their husbands who provide the family income. As a result of these socio-economic and demographic differences, the same pension policy may have different effects on men and women and pension reform can have important gender effects. Moreover, social security systems often include rules that reflect these social norms and explicitly differentiate between men and women.

# ffffeeireltisaR Esbor foirce hifstolrie

_Labor force participation rates._ Women traditionally have less continuous labor force attachment than men. The intra-family division of labor has typically resulted in men working in the market, women in the home. Even when women work in the market, this attachment tends to be temporary and part-time. It is more likely to be in the informal sector, which is not covered by formal social security schemes. Women's work may be interrupted to have children and raise them, care for elderly parents or sick members of the family, etc. These behaviors may be thought of as voluntary individual decisions, or as the result of social norms over which the individual has limited control. In either case, the consequence is that women, especially married women, are in the system for far fewer years over their lifetimes-roughly 50-70% as many years in our three sample 5
countries (Table 3). Although women's labor market experience is converging to that of men, the process is gradual and traditional roles continue to dominate in many developing countries.<sup>3</sup> _Wages._ Women typically earn less per week or year of work than men, even after controlling for age and education. This may be due in part to their lower labor force attachment (past experience and expected future tenure), in part to occupational segregation, and in part to social norms that condone lower pay to women. In our 3 sample countries, at age 20 women earn almost as much as men, but the disparity increases with age and by age 50 they earn only 60-70% as much per month of work (Table 4). The combination of fewer years of work and lower wage rates means that any pension system that links benefits to earnings or contributions is likely to cover a smaller percentage of women and to produce lower benefits for women.<sup>4</sup> _Different retirement ages for men and women._ Rules of the system often allow women to retire earlier than men. For example, women are permitted to retire 5 years earlier than men in Chile and Argentina. This enables them to retire at the same time as their husbands, who tend to be several years older. Early retirement may seem to be a privilege-that women who derive disutility from work appreciate--but it is a privilege that costs in terms of lower pension rights eamed. This cost may not be fully realized until the woman is too old to reverse her decision to retire early. It may also discourage employers from hiring or promoting older women, for fear they will retire soon. These differential rules started in traditional DB systems and they frequently continue in reformed systems-but the penalty for early retirement is greater in a DC system that is actuarially fair.

# **Demographic and biological differences**

_Longevity._ Besides these labor market and policy differences are important demographic-biological differences between men and women. Women at age 60 have a life expectancy that is 3-5 years greater than that of men, in most countries. In Chile a 60year-old women is likely to live another 23 years, while a 60-year-old man lives another 19 and a 65-year-old man lives another 15.5. A woman who retires at age 60 has a future lifespan in retirement that is 7.5 years more than that of her husband, when he retires at age 65. Thus annuitization, that provides longevity insurance, is especially important to 6
women. But any given DC accumulation yields<sup>lower annualbenefitstowomen,</sup> especially if gender-specific tables are used,<sup>asinLatinAmerica.</sup><sup>_Widowhood._The</sup> greater longevity of women also means that they<sup>are more likely to become widows than</sup> men are to become widowers; hence survivors'<sup>pensionsareof keyimportanceto</sup> women. The social custom for husbands to<sup>beolderthanwivesexacerbatesthis</sup> importance of survivors' benefits. In Chile women<sup>in urban areas were almost as likelyas</sup> men to receive a pension. However, for women<sup>thepensionisawidow'sorsocial</sup> assistance pension in almost half the cases, while<sup>formenitisalmostalwaysanown-</sup> earned pension. In Mexico the disparity is even<sup>greater (Table2).Withoutsurvivors'</sup> benefits, non-working widows are likely to find<sup>themselveswithout monetarymeans and</sup> even widows who have a pension of their own<sup>find their household incomecutby far</sup> more than their cost of living when their husband<sup>dies,duetoscaleeconomies.Asa</sup> result of women's greater longevity, during which<sup>they outlivetheir husbandsand use up</sup> their family savings, poverty among the old tends<sup>tobeconcentrated amongwomen,</sup> when they are very old-unless provisions are<sup>includedmaking that outcomelesslikely.</sup> Survivors' benefits are often included in social<sup>security systems,buttheprecise</sup> arrangements vary. Joint annuities play a major<sup>role in the new LatinAmericansystems.</sup> IlmRlCadtns fo r mnunlftiPRlIr wrefoirm Given this as background, we conjecture that recent<sup>reforms that were designedto</sup> link benefits more closely with contributions<sup>willproduce lowerown-pensionsfor</sup> women, especially women who specialize in<sup>home-work.Of course,inpure defined</sup> contribution systems, a lower pension is directly<sup>attributabletolowercontributions,if</sup> men and women have both been subject to<sup>thesame rateof returnoninvestments.</sup> In this sense, lower pensions for women might be<sup>interpretedas"equaltreatment."</sup> However, it also may signal a very low standard of<sup>livingfor olderwomen,whichsocial</sup> security was designed to avoid.

In part to mitigate this eventuality, all multi-pillar<sup>systemscontain"public"</sup> defined benefit elements, usually financed by general<sup>revenues,which deviatefrompure</sup> defined contribution. We hypothesize that these<sup>generatetransferpayments thatfavor</sup> women, but detailed arrangements such as degree<sup>of targetingtolow earners,eligibility</sup> 7
rules, retirement age and indexation provisions dictate which women benefit and how much.

The Latin American reforms also contain elaborate restrictions at the payout stage, especially regarding annuitization, that redistribute between the genders. We expect that the common requirement of survivors' benefits and joint annuities will generate an important intra-family redistribution toward women, including women who have not worked in the formal labor market themselves. In most European countries as well as the US, unisex tables are required for employment-related annuities, to equalize annual pension amounts despite gender differences in life expectancy. This is not yet required in Latin America. We examine the degree to which joint annuities serve as an alternative to unisex tables.

Finally, the new systems replaced pay-as-you-go DB systems where contributions and benefits were only loosely linked. The old systems favored women in some ways but hurt them in others; thus the net impact of the change I uncertain a priori. We examine this question empirically. We also briefly compare the gender impact of the reforms in Latin America with that in the transition economies, where policy choices and outcomes appear to be quite different

# **II Background, Data and Methodology**

To investigate more precisely the impact of pension reform on men and women, we carried out a detailed simulation of the old and new systems in three Latin American countries-Chile, Argentina and Mexico. All three countries adopted multi-pillar reforms that had as their foundation the funded DC pillar from which all participants get very similar rates of return. This inevitably means that women receive lower annual pensions than men, due to their less continuous employment histories, lower wages, earlier retirement and longer life expectancy. However, this outcome is modified by redistributions that occur through the public pillar and by annuitization arrangements during the payout stage. Each new system includes a public DB that takes the form of a minimum pension guarantee (MPG) in Chile, a "social quota" (plus an MPG) in Mexico, 8
and a flat benefit in Argentina. Each country restricted<sup>payout arrangements.We focus on</sup> urban workers, because social security coverage in<sup>ruralareas is very limited.</sup> 113riefr descrAijfons of tlhe new systems _Chile._ In 1981 Chile replaced a mature traditional government-run<sup>pay-as-you-go</sup> defined benefit system with a new multi-pillar<sup>system thatincludedadefined</sup> contribution pillar buttressed by a public pillar in<sup>theformofaminimumpension</sup> guarantee (M1PG). The old system was insolvent, having<sup>promised benefits that exceeded</sup> contributions, with the disparity differing across<sup>individualsinunevenwaysthat</sup> encouraged evasion. The object of the reform was to<sup>makethesystem largelyfunded</sup> (except for the MPG), and therefore fiscally sustainable;<sup>tolink benefitsmore closelyto</sup> contributions, thereby reducing the tax element and<sup>theincentivetoevade;and to make</sup> the redistributive element very explicit and<sup>targeted.</sup> A new system of private pension funds (AFP's)<sup>was started,that competed for the</sup> mandatory payroll contributions of workers. These contributions<sup>are10%of payrollfor</sup> investment plus about 3% for administrative fees<sup>andrequisitepremiumsfor disability</sup> and survivors insurance (all data on administrative<sup>and insurancecostsare from Jameset</sup> al 2000 and 2001). Affiliation with the new<sup>system ismandatoryfor newemployeesin</sup> the labor force, voluntary but encouraged for workers<sup>already in the laborforceatthe</sup> date of the reform and for the self-employed.<sup>Almostallemployees are nowin thenew</sup> system. Upon retirement (age 65 for men, 60 for women),<sup>workers candrawupon their</sup> accumulated savings in the form of gradual withdrawals<sup>thatarespreadoverboth</sup> spouses' lifetimes or an annuity that had to be joint<sup>for marriedmen.(Earlier retirement</sup> and lump sum distributions are permitted if<sup>theaccountbalanceislargeenoughto</sup> finance an annuity that exceeds a specified floor).<sup>Allmediumandlong-term financial</sup> transactions, including annuities, are price-indexed<sup>inChile, andmany indexed</sup> instruments are traded. Those who have worked<sup>atleast20years areguaranteeda</sup> minimum pension (MPG) that is financed from general revenues.<sup>TheMPGisnot</sup> formally indexed but so far has risen over time faster<sup>than prices,on par with wages,on</sup> an ad hoc basis. It is based purely on the individual's<sup>own pension, without taldng other</sup> income or family circumstances into account.<sup>5</sup> 9
_Argentina._ With some important variations that are described below, the Chilean scheme was emulated in Mexico and Argentina, as well as other Latin American and transitional countries. Argentina added several new wrinkles. First of all, instead of a minimum pension guarantee Argentina provides a basic "flat" benefit. It was originally financed by a payroll tax, but later other more general tax revenues were partially substituted. Since this is paid to all eligible workers it is much more costly than the MPG in Chile. To help keep costs under control, eligibility is restricted to workers with at least 30 years of contributions-a provision that excludes most women. As an alternative that applies mainly to women, workers who reach age 70 with 10 years of contributions are granted a reduced flat pension that is 70% of the regular amount. The flat benefit is not formally indexed and so far has remained constant over time. Given the fiscal problems that Argentina has been experiencing in recent years, its public pillar has been under major revision and the government is considering tightening eligibility conditions for the reduced flat. However, since the revisions are still in flux our analysis focuses on the benefit structure that was set up in 1994.

In addition to the basic benefit, 11% of payroll is contributed to a second pillar. Here the worker has a choice between a "public" DB pillar (called PAP) that is a downsized version of the old public system, and a "private" pillar that is similar to the Chilean model. PAP is available only to workers with more than 30 years of contributions; all contributions are lost for workers who contribute for less than 30 years-so it is particularly inappropriate to women As of 2001, over 80% of all contributors were in the private rather than the public second pillar. Consequently, in this paper we focus on the private option. In the private pillar, workers choose among numerous investment managers (AFJP's) and pensions depend on amounts accumulated. Administrative fees and survivors and disability insurance fees, amounting to 3.25% of payroll, are covered out of the 11% contribution, leaving a net of 7.75% for investment. Upon retirement (age 65 for men, 60 for women), the accumulated assets are taken out in the form of gradual withdrawals, annuities (joint annuity with 70% to survivor) or lump sum for amounts in excess of a specified floor.

_Mexico._ In Mexico a contribution of 6.5% of payroll is made to the individual accounts in the funded pillar. (Disability and survivors insurance while working are 10
financed separately). As in Chile, workers have a choice<sup>amonginvestmentmanagers,</sup> known as AFORES in Mexico. Retirement income is<sup>fuirtheraugmentedby a5%</sup> contribution of each worker's wage to a housing<sup>fund,INFONAVIT.If the money in the</sup> account is not borrowed to finance the purchase<sup>ofahome,itbecomespartof the</sup> worker's retirement assets.<sup>6</sup> Upon retirement at age<sup>65for both genders,married workers</sup> have a choice between a gradual withdrawal spread<sup>overboth spouse'slifetimesand a</sup> joint annuity.

The state contributes toward the finances of this system<sup>in threeways: First,it</sup> pays a flat "social quota" (SQ) equal to 5.5% of one<sup>dailyminimumwage toeach</sup> account for each day of work. The SQ is price-indexed<sup>(asistheminimumwage)but</sup> initially it was 2.2% of the average wage, a percentage<sup>thatwilldeclineaswagesrise</sup> faster than prices over time. Adding the SQ to the<sup>worker's6.5%contributionbrings the</sup> total gross contribution of the average-wage worker to<sup>8.7%andthe netcontribution,</sup> after subtracting administrative expenses, to 6.8% (plus<sup>somepartof INFONAVIT).The</sup> SQ is designed to increase the accounts of low-income<sup>workersandtheincentivefor</sup> informal sector workers to join the system. It is<sup>financed out of generalrevenues.Second,</sup> workers are guaranteed a minimum pension, initially<sup>equalto the minimumwageor 40%</sup> of the average wage, indexed to inflation, providing<sup>they had25yearsof contributions.</sup> Third, although affiliation to the new system is mandatory<sup>inMexico,workersin the</sup> labor force at the date of the reform were guaranteed<sup>therighttoopt backintothe old</sup> system upon retirement. In this paper we focus<sup>on new workerswhoarenotentitledto</sup> this opt-back provision.

Table 1 presents a brief summary of the new and old<sup>systemsinthethree</sup> countries and Table 2 presents some key data on wages,<sup>employmentandretirement</sup> income.

# MehonodoROY

Analysis of how women fare relative to men in the new<sup>andoldsocialsecurity</sup> systems is made difficult by a number of factors.<sup>First,thenewsystemhas notbeenin</sup> effect long enough to be mature. That is, current<sup>retireesin Chile andArgentinaare</sup> subject to a mixture of old and new system benefits (the<sup>fonner in the formof recognition</sup> bonds and compensatory pensions) and we don't know<sup>for sure how someone willfarein</sup> 11
the future who is fully under the new system. In Mexico almost everyone has retired under old-system rules, given the short period for building up individual accounts and the option current workers have to revert to the old system upon retirement. Moreover, in all three cases we don't know what the rate of wage growth and rate of return on investments, upon which DC benefits depend, will be in the future. Along similar lines, longitudinal data are not available. Thus, we could not use actual employment histories of current retirees and workers to estimate their retirement accumulations and entitlements.

> _Construction of representative men and women._ We solved these problems by constructing synthetic men and women-using cross-sectional data on current behavior of people at different ages, educational levels and marital status to proxy the lifetime employment, wage and contribution histories of "typical" persons in each category. We then simulated how the average man and woman in each category would fare under the rules of the old and new systems, given these histories.<sup>7</sup> While we focus on the average person in each category, we also make some attempt to estimate the dispersion within

> each cell. Five educational levels are presented, ranging from incomplete primary to

> several years of post-secondary. The modal group has full secondary education in Chile, incomplete secondary in Argentina and primary education in Mexico (Appendix A). With

> the exception of young women in Chile, fewer than a quarter of our sample had any postsecondary education. We use education as a proxy for "permanent income."

This methodology assumes that age-specific labor force participation and wage behavior will remain constant through time (except for secular wage growth), separately for each schooling level. We interpreted these as age effects rather than cohort effects. In reality, cohort effects are undoubtedly involved. Female labor force participation rates are strongly positively correlated with education, and educational levels have been rising dramatically over time (Table 3). This means that aggregate female labor force participation rates will also rise through time. Changing social norms may lead to additional increases in female employment probabilities within each educational category. Moreover, the work incentives and disincentives in the new pension systems may alter work habits.

> These potential changes in age-specific female labor force participation rates were not taken into account. However, in addition to the "average" woman in each educational

12
group, we also calculated pensions<sup>for"ten-yearwomen"whoworkedonlytenyears</sup> prior to child-bearing and "full<sup>careerwomen"who hadthesamelaborforce</sup> participation as men. Full career<sup>women give us an indicationof the impactof increasing</sup> age- and education-specific labor<sup>forceparticipationrates.Theabsenceof longitudinal</sup> data meant that we could not<sup>varywagesasafunctionof experience sothelifetime</sup> earnings and pensions of full career<sup>womenare probably understated.</sup> Our representative men and women<sup>are assumedto be singleuntil the median age</sup> of marriage in each country,<sup>and marriedthereafter.They marry within their educational</sup> class, and the average husband<sup>isthree yearsolder than thewife.Thus we do not model</sup> women who remain single<sup>throughout theirlifetimes,becauseof small samplesizeof</sup> single women in some age-educational<sup>cells.Since single women probably have a greater</sup> labor force attachment than<sup>marriedwomen, our simulationsforfull careerwomen may</sup> give us a rough approximation<sup>of their lifetime earningsand benefits.</sup> _Data._ In constructing our<sup>syntheticmen andwomen,weusednational datasets</sup> for urban areas (see Appendix<sup>Bondatasources).Thesedatado not coincide precisely</sup> with groups that are actually<sup>covered by the social security system.Somesocial security</sup> affiliates live in rural areas while<sup>some urban residentsare not coveredby socialsecurity.</sup> In Chile our data cover only<sup>those affiliatedtosocialsecurity,which means they werein</sup> the system at some points<sup>intheirlives.Thishelpsexplainwhy thelaborforce</sup> participation rates of women<sup>appearto be higher in Chilethanin Argentina andMexico,</sup> where all urban workers are<sup>included.These datamayunderstatewagesandworkof</sup> women who were covered by<sup>social security andthereforeoverstatethe pensiongender</sup> differential in Argentina and<sup>Mexicofor thisgroup.AlsoinChilethe wageand work</sup> data primarily cover full time<sup>workers whilein Argentinaand Mexicotheycoverfull</sup> time plus part time workers.<sup>Thus fulltimeequivalentyearsaresmallerand fulltime</sup> wages are larger for urban<sup>working women thanthenumbersgivenfor thelattertwo</sup> countries. We attributed all working<sup>timeascontributingtime, butit is quitelikely that</sup> part of this work is outside<sup>the formal laborsectorand thesocial securitysystem-these</sup> data would then overestimate<sup>lifetimecontributions,especiallyforwomen.For this</sup> reason we may have underestimated<sup>thegender differentialin pensionsfortheaverage</sup> woman stemming from the<sup>privatepillar.However, thisbiaswillprobablydiminish</sup> 13
age and age of death vary by gender<sup>and country and benefits from the joint annuitystart</sup> flowing to widows late in old age.

_The counterfactual._ In Parts III-V<sup>we discussthe new systemsonly, sothere is no</sup> counterfactual. In Part VI we apply<sup>the DBformulaeof theoldsystemstoassessthe</sup> gender impact of the new<sup>versustheoldsystems.Thisintroduces anadditionalsetof</sup> methodological problems. The old<sup>systems wereactuariallyunbalancedso could not have</sup> delivered their promised benefits<sup>inthelongormediumterm.Argentinawasalready</sup> defaulting on its payments. What,<sup>then,isthecounterfactualtothenewsystem?We</sup> avoid this problem by applying<sup>the DBformulaethatwereinplacejustpriortothe</sup> reform, and focusing on relative rather<sup>than absolute gains and losses todifferentgender-</sup> education-marital groups. Thus<sup>we abstractfromefficiencyeffectsthatmightlead</sup> everyone to be better or worse<sup>off. Insteadwe ask:Whichgroups gainedor lost the most</sup> from the reform? Did gender<sup>ratios improveor deteriorate?hnplicitly,this is tantamount</sup> to a counterfactual in which the<sup>fiscaladjustmenttoinsolvencyinthe oldsystems is</sup> distributionally neutral, involving<sup>equi-proportional benefitcuts or taxincreasesforeach</sup> group, while leaving relative positions<sup>unchanged.9</sup> _Taxes._ Throughout, this analysis<sup>concentrateson the benefitsideratherthan the</sup> finance side, because we don't<sup>knowwhat thefullcostofthepublicpillar,its</sup> intergenerational burden or<sup>itsgender incidencewillturn outtobe,eitherin the oldor</sup> new systems. Our comments<sup>on netredistributions(transfersminustaxes)arebasedon</sup> the assumption that within each<sup>cohort,the tax burden is distributedroughly proportional</sup> to earnings.

111. Aaunnaie5 Tor Men<sup>animdWomeEnfromthe ]PrivatePffligar</sup> Work anim wage experiiece of men<sup>versus womenm</sup> Based on our cross-sectional<sup>analysiswefind that,onaverage,womenaffiliates</sup> in Chile work and contribute<sup>tothesystemonly70%asmanyyearsasmen(Table3).</sup> Using secondary school graduates<sup>as an example,by the time they reach the age of 65 the</sup> average male affiliate has contributed<sup>38yearswhiletheaveragefemaleaffiliatehas</sup> contributed only 27 years. In<sup>Argentinamen tendtowork moreand womenless,sothe</sup> relative experience of women<sup>is</sup> lowerO%<sup>forsecondaryschoolgraduatesand less</sup> 15
than 50% for the majority who didn't even finish secondary school. In Mexico, too, the gender ratio of experience is less than 50%. In all cases, the experience disparity is smaller for young women, before they marry. Also in all cases the gender gap narrows substantially for the minority with higher education but it never completely disappears. By the age of 65, the average woman without a university degree in all these countries has accumulated 18-27 years of experience, while the average man has accumulated 3844.

In all three countries younger women who work earn almost as much as men (Table 4). However, earnings diverge as they age-the age-earnings profile is much steeper for men-perhaps because of the returns to experience. Prime age male earnings profiles rise 2-3% per year while female profiles rise 1-2%per year. Thus, by the time they reach age 50, women earn barely 60% as much as men per month worked, in most educational categories. For example, a Chilean man with a secondary degree age 46-50 earns US$535 monthly, while a comparable woman earns $326. The pattern is similar in Mexico, although absolute amounts are lower. In Argentina a male secondary school graduate in his late 40's earns US$1105 while a comparable female earns $666. (Our Argentinean data are from 1996-97 and use 1997 exchange rates. At 2002 exchange rates these amounts would be only 25-30% as high-much closer to Mexico. The choice of exchange rates should not affect gender ratios). While highly educated women work almost as much as men, their monthly earnings do not converge and, in fact, they diverge further in the highest educational category in Chile.'<sup>0</sup>

**Gender ratios in pension accumulations and monthly own-pensions**

> We now proceed to estimate the gender ratio of retirement savings and annuities under the new system (Table 5). In this section we discuss the pure DC plan, based on

> contributions by workers and employers. (In Mexico we exclude the government's contribution, the social quota). We would expect women's simulated retirement accumulations to be far lower than those of men, as a result of lower labor force participation and lower earnings while working. Converting these accumulations into an

> annuity, women's benefits will be further depressed by their greater longevity--but this is

> offset by the fact that married men who annuitize must purchase a joint annuity that

> covers their wife's life as well as their own. We would further expect women's annuities

16
to be relatively the highest<sup>inChile,wheretheirrelativelaborforceparticipationand</sup> eamings are highest, and lowest<sup>in Mexicofor the converse reason.Infact, wefind that</sup> the average woman ends up<sup>with an own-annuitythat is approximatelythesame inChile</sup> and Mexico--30-50% that of<sup>the average man--andless than 30% in Argentina(Figure1).</sup> Mexico jumps ahead of Argentina<sup>andonpar withChilebecauseithasdecreedequal</sup> retirement ages (65) for men<sup>and women, unlikethe othercountries.These ratios riseat</sup> higher educational levels, because<sup>ofthepositive correlationbetween educationand</sup> female labor force participation.<sup>Genderratiosarealla bithigherintheslow growth</sup> scenario, where wage differentials and pension accumulations remain more compressed.'<sup>1</sup> HmleaCt of retiremeimt gEe<sup>omowa-zaimuMiie</sup> Equality of retirement age for<sup>menandwomenisthe main reasonwhy Mexico</sup> has the same gender ratio<sup>asChile,despiteitslowerfemale workexperience.If we</sup> postponed the age of annuitization<sup>forwomento65(equalitywithmen)inChileand</sup> Argentina, this would raise<sup>theirmonthlyannuitybyalmost50%,even with work</sup> experience unchanged, because<sup>interestaccumulates forfive yearsmore and theannuity</sup> is paid for five years less.<sup>Thisisthemajorpolicychangethatwouldraisewomen's</sup> monthly own-annuities. But<sup>even fullcareerwomenwho workas muchas men get only</sup> 65-75% as much as men because<sup>of large wage disparities.Theunavoidableconclusion:</sup> policy regarding retirement age<sup>isveryimportant,butevenwithequal retirementages,</sup> own-pensions from the DC<sup>pillar will be farlower for women than for men,due totheir</sup> lower labor force participation<sup>and wage rates,as wellas their greater longevity.</sup> NIV. IEnm pac1 of nramifers<sup>ffrom nhe pnblepiARiDr</sup> However, this wide disparity<sup>in own-pensionsis narrowedby transfersthat occur</sup> through the public pillar--<sup>theminimum pensionguarantee(MPG)inChile,the social</sup> quota (and MPG) in Mexico<sup>andtheflat pensioninArgentina-andby restrictionson</sup> payouts in the private pillar,<sup>especiallythejointannuity.Thesetransfersraise the</sup> female/male ratio of total<sup>retirementincomeandproduceahigherrateof returnon</sup> contributions for women<sup>thanfor men. Each country reflectsa different ethos in its public</sup> 17
> pillar: poverty-prevention in Chile, equalization but at different levels for those with weak and strong labor force attachment in Argentina, and equal pensions for equal work in Mexico. Also, these public pillars have very different costs and different costcontainment techniques, which impact women in particular. Chile's narrowly targeted MPG is the least expensive and it raises the gender ratio only for women in the lowest

> group; Mexico's work-related SQ increases gender ratios in all educational categories, but by smaller amounts; and Argentina's flat benefit raises gender ratios more substantially in all income groups-but only after age 70, and at the greatest cost. Each of

> these public pillars redistributes to low educational groups, especially to the women in

> each group, and women who are eligible for the public benefit consequently end up well

> above the poverty-line (Table 6 and Figure 2).

Low lifetime earnings stem from a) low wage rates and/or b) low work experience. Targeting toward low earners may therefore reward low labor force participation. Each country has chosen a different way to deal with this potential trade-off between equality and poverty-prevention on the one hand versus work incentives on the other hand. This shows up in differing eligibility rules, work-benefit linkages and retirement age provisions. As a result, they provide different relative subsidies to different sub-groups of women, particularly to those who specialize in home-work versus formal labor market work.

# **Chile's** MPG

_The MPG as an income floor._ The MPG sets a floor on the real value of pensions of workers who qualify by attaining 20 years of contributions. The MPG floor in 1994, the year our data were gathered, was $91 per month, about 27% of the average male wage, 37% of the average female wage and 125% of the poverty line at that time. In effect, it truncates the lower tail of the pension distribution. Since it goes (only) to the least well off (among those in the formal labor market), it may be considered an application of Rawles' principle for redistribution. Gender ratios are narrowed for those below the truncation point, who get raised to the MPG level. Those above the truncation point are unaffected. As we shall see, this poverty prevention emphasis is different from the concept of equity embodied in the Mexican and Argentinean plans. Given this narrow targeting of Chile's MPG, its fiscal cost will be extremely low in the baseline case. The 18
estimated cost of a price-indexed<sup>MPGinamoderategrowthscenarioisabout1%of</sup> payroll.1<sup>2</sup> In virtually all scenarios in Chile,<sup>womenare themajorrecipients-theyare</sup> the least well off (Table 6).

_The MPG as insurance against partial_<sup>_labor force attachment._Sincethe average</sup> male worker in every educational<sup>categoryaccumulatesanown-pensionfar abovethe</sup> floor set by the price-indexed MPG,<sup>he neverneedsatop-up.Incontrast, theaverage</sup> female with primary education or<sup>less gets a small (20%or $15)monthly top-upto own-</sup> pension from the MPG, helping<sup>to narrowthegender gapfor lowearners.'3Her pension</sup> is consequently 39% of her male<sup>counterpart's, ratherthan32%thatshewouldget</sup> without the MPG, and she also<sup>improves herpositionrelativetofemaleswithmore</sup> education (Table 6). **14** Women who work full career<sup>(like men)do notget the MPG inany educational</sup> category, because their own pensions<sup>exceed the MPG.Thus, the MVPGis mainly directed</sup> toward low eamers who eam low<sup>wagerates</sup><sup>_and_b)worklessthanfullcareer.Itis</sup> insurance against transient labor force<sup>attachment,mainly by women. Sincelabor market</sup> attachment is volitional, to a large<sup>extent, somewouldquestion thisas anequitableand</sup> efficient arrangement. In the presence<sup>of a minimumpensionguarantee,moral hazard</sup> regarding work decisions is obviously<sup>present(see below).Chile counters these issues by</sup> imposing a requirement that women<sup>workatleast20yearsto be eligible;thislimitsthe</sup> number of eligible women and the<sup>size of the top-up needed.15</sup> _Years required for eligibility and_<sup>_strategicbehavior._</sup> The twenty-year requirement for eligibility turns<sup>outtobeafortuitouschoice.Inpracticallyevery</sup> educational category, the average<sup>woman has more than 20 yearsof work.If the bar had</sup> been placed at 10 years, as in Argentina<sup>for the reducedflat, manymiddle classmarried</sup> women who chose to stay at<sup>homemighthavequalified,asubsidythatwouldbe</sup> expensive and that many would consider<sup>ill-targeted.If the bar were raised to 25years, as</sup> in Mexico, the average woman<sup>withlessthan a secondarydegreewould failthetest for</sup> eligibility. In that case, the very group<sup>thatqualifieson own-pensiongroundswould be</sup> ruled out on years of contributions<sup>groundsandnoonewouldgettheMPG-</sup> demonstrating the extreme sensitivity<sup>of gender impact to this policy variable.</sup> 19
Given the 20 years required for eligibility in Chile, it is likely that over time contributory years for low earners will adjust and converge around that point, as a result of strategic behavior. Women with slightly less than 20 years will increase their working time to qualify for the MPG. In contrast, women with a bit more than 20 years may cut their working time down, because their marginal public pension for the additional years of contributions is negative; their own larger private accumulation simply displaces the MPG supplement. Thus we can expect a clustering of pensions for women with low educational levels around the neighborhood of the MPG in the future-a kind of povertylevel trap. Although in general Chile's scheme rewards formal sector work through its private pillar (DC plan) and through the treatment of the widow's pension (see below), the MPG encourages strategic behavior and discourages work for low earning women.<sup>16</sup> This potential for strategic behavior and work disincentive could be avoided if the guaranteed pension increased continuously with years of work above a floor, rather than simply being a target level with an on-off switch for eligibility.

> _The MPG as a deterrent to postponed retirement._ Closely related, the current retirement age for women is only 60, as compared with 65 for men, in Chile. One possible policy change that is under discussion is to raise the female retirement age to parity with that of men (to age 65). This policy change would push ahead by 5 years the date when women can begin drawing on their retirement savings, it would increase by 5 the years during which investment earnings accrue, and it would reduce by 5 the years during which they collect annuities. The combination of these forces would increase women's own-annuity by almost 50%--from $76 to $112 monthly in the lowest educational category-even if women don't do any additional work during that 5-year period. This brings the average woman in all educational categories above the MPG level so she loses the MPG for her entire period of retirement. Because of this crowd-out effect, the MPG poses a strong disincentive to these women to postpone their retirement beyond age 60-for every dollar of monthly pension income they earn, they get a commensurate cut in their MPG.'<sup>7</sup>

_Wage versus price-indexation of MPG: do future cohorts of women benefit?_ The low projected cost of the MPG is due in large part to the fact that it is expected to remain constant in real value and to decline through time as a percentage of wages and own20
pensions. Given our projected real wage growth of<sup>2%peryear,in40years,when</sup> today's young workers retire, the $91 MPG would<sup>beonly10%of theaveragewage</sup> instead of 25%, as it is now, under these assumptions.<sup>Ten yearslater theneedfor the</sup> MPG top-up would virtually disappear as wages<sup>andaccumulationscontinuetogrow</sup> relative to a constant MPG. If it were formally price<sup>indexed this would protectretirees</sup> from inflation but the protected floor would fall relative<sup>toaveragewagefor future</sup> cohorts, and it would eventually become irrelevant. Thus,<sup>aprice-indexedMPG willdo</sup> little to improve gender ratios in the future. A wage-indexed<sup>MPG,in contrast, would</sup> maintain the current ratio between the protected floor<sup>andtheaveragewage-butit</sup> would cost much more and poses much greater moral<sup>hazard problems.(The safety net in</sup> Mexico and Argentina also will diminish over time compared<sup>with the averagewageand</sup> hence will give less relative protection to future<sup>cohortsof older women.)</sup> Chile is apparently ambivalent on this issue, so we have<sup>modeledboth priceand</sup> wage indexation. So far, the MPG has kept pace<sup>withwagegrowththroughadhoc</sup> increases. By the end of 2001 it had reached $110 for<sup>pensioners belowage 70 and$121</sup> for pensioners above age 70. If ad hoc wage indexation<sup>continues,it would reach $200 by</sup> the time today's young workers retire. The top-up for<sup>womenin thelowesteducational</sup> category would rise from $15 to $124 monthly and<sup>the gender ratiointhatcategory</sup> would rise from 39% to 85%. A much broader<sup>groupof women(andevensome men)</sup> would receive some top-up. Differentials between<sup>highandlowearning womenwould</sup> be compressed (Table 6A). Of course, this increase<sup>in transferswould increasethe fiscal</sup> cost substantially. It would also lead to much greater<sup>strategicmanipulationand incentive</sup> to work in the informal sector once eligibility is established-for<sup>menas well as women.</sup> This could be countered by tying the MPG level<sup>continuously towork experience,as in</sup> Mexico.18 _Insurance against prolonged slow growth._ These<sup>resultsareverysensitiveto</sup> assumptions about investment returns and wage<sup>growth.Ina slow-growthenvironment</sup> (real rate of return = 3%, real wage growth = 0),<sup>the$91price-indexedMPCGismuch</sup> higher relative to workers' own annuity. Accumulations<sup>simply do not build upveryfar</sup> under low wage growth and investment returns. The MPG<sup>makes up thedifference, up to</sup> $91, so total expenditures on the MPG escalate<sup>sharply.Consequently,underslow</sup> 21
growth we find that some men with low educational levels qualify for an MPG top-up, and most women qualify, including many with university education (Table 6B and Appendix C). The gender ratio is narrowed dramatically; in some categories it almost disappears. Of course, the government might encounter a financing problem, under these circumstances. But if the MPG can be debt financed, cohorts who live in such periods are, in effect, cross-subsidized by cohorts who live in more fortunate periods, which smooths the pensions of cohorts over time. And the majority of the recipients are women.<sup>19</sup> _Summary for Chile._ In sum, the MPG in Chile is inexpensive, well targeted toward low earners, especially women, and insures workers against prolonged periods of slow growth. It reduces the gender gap at the low educational end but not at the middle or high end, nor does it help women who worked in the formal labor market less than 20 years. It distorts marginal work decisions beyond 20 years and beyond age 60 for low earming women, hence leaving them in a "near-poverty trap." As real wages increase the guarantee will decline relative to the average wage and it will have a smaller and disappearing impact on gender differentials. Its impact will be maintained if it rises with wage growth, but then its monetary and moral hazard costs also rise. Work effort by women might be increased, gender gap decreased and future cohorts better protected if retirement age were equalized for the two genders and the MPG were partially wageindexed but tied positively and continuously to work.

# **The two-tiered flat benefit in Argentina**

_Eligibility for the basic benefit-not for women._ Argentina pays a flat benefit of US$200 as an add-on rather than a top-up to the worker's own-pension. (Recall that we are using 1997 exchange rates in converting to US $'s.) It was initially equivalent to 30% of the average male wage, 45% of the average female wage and 130% of the poverty line. It is not formally indexed and has remained constant over time. Thirty years of contributions are required for eligibility. Most men in all educational categories meet this requirement and receive this benefit, starting at age 65. Among men, the flat benefit increases their total pension by percentages ranging from 25-40% for those without secondary education, to 10-20% for those with university education. Because it adds a substantial uniform amount to a disparate wage-based annuity, it is very effective at 22
equalizing pensions between high and low earning<sup>men.Incontrast,mostwomenare</sup> ineligible for this flat benefit because they work<sup>lessthan 30 years--exceptfor those with</sup> university education, who can begin receiving<sup>thefullflat at age60. Thisis the converse</sup> of the eligibility situation in Chile (Table 6 and<sup>Figure 2).</sup> _Reduced basic benefit for women._ Most women<sup>areeligible for thereduced basic</sup> benefit of $140 at age 70, which accrues to<sup>workerswhohave morethan10yearsof</sup> contributions. Compared with the woman's<sup>ownwage andannuity,thisreducedflat</sup> benefit is very large. It doubles the monthly<sup>pension of the averagewoman with lessthan</sup> secondary education and trebles the monthly<sup>pensionof the ten yearwoman,atage70.</sup> This leads to a sharply contrasting situation<sup>between womenat ages 65and70: at age 65</sup> the female/male ratio of monthly pensions<sup>is lowerthan inChile or Mexico.But it jumps</sup> up to the same range as Chile and Mexico-30-45%--at<sup>age70.20The flat benefitis the</sup> same in absolute value during periods of slow<sup>growth,but much larger relativeto own-</sup> annuity, thereby providing insurance that pays<sup>off to bothgenders,butespeciallyto</sup> women, living during prolonged economic<sup>slowdown.Boththe flatandreducedflat</sup> benefits will diminish in relative importance<sup>over timeaswages rise,butwillremain</sup> significant factors for many years, given the<sup>high starting point.</sup> _Discontinuous link to years worked._ Argentina's<sup>attempttoextenda minimum</sup> benefit to all, while also rewarding work to<sup>someextent,leadstopuzzlingpattemof</sup> work (dis)incentives. Women face a large<sup>rewardforworking10yearsintheformal</sup> labor market, but no marginal benefit from contributing<sup>to the public pillar over years10-</sup> 29: a person who has worked for 10 years<sup>getsthe same reducedflatbenefitanda much</sup> larger subsidy than one who has contributed<sup>for29years.Then,inyear30,the public</sup> benefit jumps discontinuously to full flat<sup>beginningatage 60.</sup> the equity of this arrangement is questionable, nor does it<sup>seemconsistentwithpositiveincentivesto</sup> participate in the formal sector over the range<sup>wheremostwomenarenow(18-25years</sup> of work). Since the public benefit is a large<sup>partof thetotal systemin Argentina,these</sup> equity, efficiency and evasion problems<sup>stemmingfromeligibilityconditionsand</sup> discontinuities also loom large. Argentinean<sup>policy-makers apparentlyreachedthis</sup> conclusion and recommended linking the<sup>flat benefitmorecontinuouslyto yearsof work</sup> in the year 2000 reforms (not yet implemented).

23
# **Mexico: MPG versus social quota.**

_The social quota (SQ)._ The main tool of the public pillar in Mexico is the social quota (SQ)--a uniform payment by the government into each worker's individual account, per day worked. This daily payment is independent of his or her own wage rate and of how many years the worker has contributed, in toto. The SQ is 5.5% of the minimum wage (initially 1.8% of the average male wage and 2.6% of the average female wage) for every day worked. Thus it is roughly a one-third match to the 6.5% contributed toward the private pillar. It is more expensive than Chile's MPG but far less expensive than Argentina's flat. It should produce an annuity that is about 10% of the average wage for the full career worker. Mexico's SQ gives the most equal treatment per day of work to all educational and gender groups. In this sense it is the least tilted toward women but the most effective at incentivizing work and contributions (Table 6). Although it equalizes less than Chile at the lowest level, it equalizes more at other levels. Since it is indexed to prices, it will decline over time relative to the average wage Public benefits are sometimes criticized on grounds that they incur a large unfunded liability that future generations will have to meet. If funded, the government may misuse the money in the meantime. The Mexican SQ deals with these issues by prefunding the benefit and putting the money into each worker's account to invest. Flat benefits (as in Argentina) or MPG's with an on-off switch (as in Chile) are criticized on grounds that they contain work disincentives and create inequitable cliff effects. The Mexican SQ avoids this problem by making the payments a continuous function of days worked. This means it redistributes primarily to people who are poor because of their low wage rates, rather than people who are poor because they only worked part of their lives.

_Irrelevance of the MPG._ For poverty-prevention Mexico also has an MPG, but it is far less relevant than that in Chile. In our baseline case, largely because of their equal retirement ages, both the average man and woman in all educational categories accumulate an own-pension that exceeds the MPG floor. In contrast, under slow growth men continue to exceed the MPG while the average woman is below the MPG line all the way up to the university level. But none of these average women have enough years of contributions for eligibility.<sup>2</sup> ' Thus neither the average man nor woman receive 24
Mexico's MPG, but for diametrically opposite reasons.<sup>Thechoicebetweena 20 and25-</sup> year eligibility rule tums out to be crucial,<sup>given current labor forcebehavior of women.</sup> Conmparing tIe lfedme trnm bDe blicn5firs er$ _ios_ a-gnrounps The public pillars in all three countries compress<sup>monthlypensiondifferentials</sup> and improve the gender ratio. They all increase<sup>disproportionately themonthly pensions</sup> of workers in the low educational categories,<sup>especiallythelowesteamersinthese</sup> categories, who are predominantly women.<sup>Theyallreduce oldagepovertyamong</sup> women. However, the different forms that<sup>thesepublicpillarstake havequitedifferent</sup> distributional effects on sub-groups among<sup>women.These variationsreflectdifferent</sup> concepts of equity and different trade-offs between<sup>equality and work incentives.</sup> To analyze these effects, we shift to a lifetime<sup>ratherthana monthlyunitof</sup> comparison. This is necessary because the retirement<sup>age variesacrosscountriesand sub-</sup> groups. In Chile women retire at age 60 while<sup>men retireat 65. In Argentina high earning</sup> women are eligible for the full flat at age<sup>60whilemengetitat65andloweaming</sup> women, who typically work fewer years, are<sup>eligible for the reducedflat at 70.In Mexico</sup> both men and women retire at 65. In each<sup>case,we calculate theexpected presentvalue</sup> (EPV) of the lifetime stream of income from<sup>the public and privatepillars,asvaluedat</sup> age 65.22 In all three countries, lifetime pension<sup>genderdifferentialsaresmallerthan</sup> monthly differentials because women live<sup>longer than menand(inChile and Argentina)</sup> retire earlier. In Chile only low wage women<sup>withtransientlaborforceattachment</sup> receive a benefit from the public pillar (the<sup>restonlyreceivemoneyfromtheprivate</sup> pillar), while in Argentina and Mexico all<sup>workersreceive somepublicbenefit,andthe</sup> gross benefit is larger for men than for women.

To determine net benefits we must take account<sup>of taxes that are used tofinance</sup> these benefits. Recall that these public benefits<sup>arefinancedoutof general revenuesin</sup> Chile and Mexico, and out of a combination<sup>of payrollandotherspecialtaxesin</sup> Argentina. We don't know the level of these<sup>lifetime taxesforeachcohort,butin the</sup> following discussion we assume they are distributed<sup>withineachcohort proportionalto</sup> lifetime wages and we use lifetime own-annuity<sup>asa proxy thatishighly correlatedwith</sup> lifetime wage. Since the public benefit in<sup>thesethreecountriesaddsa muchlarger</sup> percentage increment to lifetime own-annuity<sup>forlowearnersandwomen,thesetwo</sup> 25
> groups receive a net transfer and the subsidy component is largest for women in the

> lowest educational categories (Table 7).

However, formal labor force attachment is rewarded differentially in these three countries. Specifically, only the average woman in the lowest educational group, who retires early with about 20 years experience, gets a positive net transfer in Chile. Neither ten-year women nor full career women nor average women who postpone retirement get the MPG. In contrast, in Mexico, which offers the most consistent rewards for work, full career women in the bottom educational groups get the largest total net transfers.<sup>23</sup> And in Argentina ten-year women get the highest rate of return. The formal sector work disincentives from the public pillar in Argentina and Chile partially offset the positive work incentives stemming from the DC pillar and the joint annuity, especially for low earners.

# **VI. Gender Impact of Annuity Requirements-intra-household transfers**

By far the largest impact on lifetime gender differentials stems, not from public transfers, but from private intra-household transfers through the joint annuity. From the viewpoint of gender equality, this is the biggest innovation in the new systems. Women live longer than men and are typically younger than their spouses. Thus annuitization, including price-indexation of benefits, is very important to women, who may otherwise run out of money before they die. Thus also, widows are more common than widowers, so survivors' benefits are particularly important to women when the husband is working and joint annuities are vital after retirement. For these reasons, all three countries include rules regarding annuitization and survivors' benefits, which generate large transfers from husbands to wives. In periods of moderately high growth, these transfers are much larger than those through the public pillar, especially for middle and high-income groups (Figure 3). They are the main mechanisms by which the new social security systems protect older women. Single women and those cohabitating without a formal marriage do not benefit from this transfer.

**Survivors' benefits while husband is working**

26
In traditional DB systems survivors'<sup>benefits are paid out of the common pool and are</sup> a fixed percentage of the husband's<sup>potentialbenefit.Thismeansthathusbandswith</sup> young wives or with high pension<sup>returns aresubsidizedby others,including singleand</sup> low-income households. In contrast,<sup>inthenewLatinAmericanmulti-pillarsystems,</sup> husbands are required to purchase<sup>survivors'insurancefor their wives,whichendsthis</sup> inter-household subsidy. They pay<sup>a smallamount(far less than1%of payroll),for this</sup> insurance. Cost and benefits of<sup>survivors'insuranceareinternalizedwithineach</sup> household. In this paper we do<sup>notincludethevalueofsurvivors' benefits,asour</sup> representative men and women<sup>are allassumedtolivean "average"lifetime.To this</sup> extent we understate the transfer<sup>from men towomen in the new systems.</sup> lJomt amintities after reThrement Additionally, all three countries require<sup>that, when husbands retireand annuitize, they</sup> purchase joint annuities (or take<sup>gradualwithdrawals spread overbothlives),fiurther</sup> protecting their wives. In Chile<sup>andMexicothesurvivorgetsat least60%andin</sup> Argentina 70% of the primary benefit.<sup>The requirementsof survivors' insuranceand joint</sup> annuities can be viewed as a formalization<sup>of theinformalfamilycontract,in which men</sup> agree to provide monetary support<sup>to their wivesin returnfornon-monetary household</sup> services; the joint annuity is a way<sup>to fulfillthis obligation after the husband'sdeath.24In</sup> our main simulations given above<sup>we thereforeassumed jointannuitiesfor marriedmen</sup> (but not for women). The cost<sup>of thejointannuity(intermsof lowerpayoutto the</sup> husband) depends on the age of<sup>thewife.Whenweassumethatthewifeis3years</sup> younger than the husband, joint<sup>annuitiespay12-17%lesspermonththanindividual</sup> annuities (Table 8). The average<sup>annualwidow'sbenefitafterthehusband'sdeathis</sup> usually greater than her own-pension.

Joint annuities are especially important<sup>becausethecost of livingof acoupleis</sup> not very different from the cost of<sup>livingof a single widow, due to householdeconomies</sup> of scale. Without such annuities,<sup>a</sup> woman's<sup>standardof livingwoulddropprecipitously</sup> after her husbands' death-even if<sup>she had a pension of her own.The widow's plus own-</sup> benefit maintains household purchasing<sup>powerat70-80%of thepreviouslevel,soher</sup> standard of living is roughly unchanged.<sup>The jointannuityalsoprotects women whodid</sup> not work at all in the formal market,<sup>maintaining household purchasing power at 60-70%</sup> 27
of previous levels. This could, of course, be achieved without a joint annuity if each household were far-sighted, rational and took the welfare of both members fully into account. However, if households are myopic, or if the husband places greater weight on consumption during the period when he will be alive, the household may not save and insure enough voluntarily and may, in fact, use up its pre-retirement savings as well (for empirical evidence see Bermheim et al 2003). A similar objective could be achieved through earning-sharing or if husbands were required to fund separate accounts for nonworking wives; however, this might be difficult to enforce. The joint annuity is easily monitored and it ensures that something is left over for the surviving wife. It postpones consumption and places greater income under the direct control of the woman, when she becomes a widow. It is likely to reduce the incidence of poverty among very old women. It accomplishes this without putting a burden on single men and women through the common pool, as the old systems did. The clear equity principle in societies that impose this requirement is that it is a family responsibility to support very old women, where they can afford to do so.

> The requirement of joint annuities or withdrawals scheduled over the joint

> lifetime of husbands and wives means that lifetime transfers and rates of return vary

> strongly by gender and marital status (Table 7). Married men lose relative to singles

> because they must purchase a joint annuity. Of course, this income foregone by the husband is eventually received by his wife. So from the vantage point of the married household, in the long run this positive and negative transfer cancels out. However, from the vantage point of each individual member, the joint annuity requirement shifts income to the woman, later in life, just at the point when she most needs it most, to avoid a

> drastic drop in household income. The lifetime transfer through the joint annuity far exceeds the transfer from the public pillar, in practically every educational group in all three countries. It adds about 30-70% to the lifetime benefit of the average woman in all

> educational categories. For ten-year women, the joint annuity almost doubles the wife's own-annuity in Chile and more than doubles it in Argentina and Mexico--this is the main

> means of support of very old women who have worked mainly in the home. It raises the

> average female/male ratio of total lifetime benefits to 60-90%, and for full career women,

> to over 100%. In contrast, full career single or divorced women or those cohabiting

28
without a formal marriage are<sup>estimated to havelifetime benefits70-80%those of single</sup> men (Tables 7 and 10). Unless<sup>joint annuities areextended to these groups,either through</sup> legal or voluntary arrangements,<sup>they willhaverelativelylowpensionsinoldageasa</sup> corollary to their relatively<sup>low wageswhile working.2 5</sup> The infteirctiioim lbetweeDn<sup>Doiim</sup> gflities u and uiriseu tiabRs?

One reason for the lower<sup>annualannuitiesof women is their greaterlongevity. To</sup> eliminate this impact, some<sup>countriesspecify thatunisexmortalitytablesmust be used</sup> for pricing annuities that are<sup>partof their mandatory systems.None of our three countries</sup> require this, but it is likely<sup>to be requiredin Europe and the US and is under consideration</sup> in Latin America. Unisex<sup>tablesapply the averagemortality ratesof men plus women to</sup> both genders, in contrast<sup>togender-specifictablesthatapplydifferent(higher)life</sup> expectancies to women.<sup>Theyreducemen'spayoutsand increasewomen'sby5-10%,</sup> when individual annuities<sup>areinvolved (Table8).The publicpillarimplicitly usesa</sup> unisex concept, as annual<sup>benefitsare not tied explicitlytogender.</sup> Gender is one of the main<sup>dimensionsof riskcategorizationusedby insurance</sup> companies, unless regulations<sup>requireunisexrisk rating.Requiring unisex tablesisvery</sup> controversial, since it implies<sup>discardinginformationrelevanttoriskcategorizationand</sup> redistributing from men<sup>(both highandlowearners)towomen (bothhighandlow</sup> earners). In a competitive<sup>insurancemarket,theunisexrequirementmayleadto</sup> creaming, selection and<sup>marketinstability problems,as(1)eachcompany tries toattract</sup> the better risks (men), (2)<sup>companiesthatend up withadisproportionatenumber of the</sup> bad risks (women) will<sup>makelosses,and(3)menarediscouragedfrompurchasing</sup> annuities because their expected<sup>lifetimepaymentsarelessthanthepremiumsthey are</sup> charged.

The decision about whether<sup>or nottorequire unisexmortalitytablesinviewof</sup> these potential problems<sup>dependsin parton avaluejudgmentaboutwhetherto</sup> redistribute from one gender<sup>toanotherand in parton whether other more efficient ways</sup> have been adopted to achieve<sup>socialgoalssuchaspovertypreventionamongolder</sup> women. If unisex tables<sup>arerequiredtheyshould probablybeaccompaniedby a risk-</sup> adjustnent mechanism-imposing<sup>ataxpermanandusingittofinancea subsidyper</sup> woman, in order to make<sup>bothgendersequally profitable to the insurancecompanyand</sup> 29
alleviate the supply side problems mentioned above (points #1 and 2). However, the demand side selection problem will still remain if annuitization is voluntary, and may lead the market for individual annuities to be dominated by women. In that case, unisex tables that are based on average annuitant mortality will effectively use gender-specific female rates, and men will be worse off without making women better off.

Fortunately, when joint annuities are involved unisex tables matter much less, since the payout extends over both lifetimes in either case. For married men and women, monthly and lifetime payouts and gender ratios of pensions stemming from joint annuities are very similar whether unisex or gender-specific tables are used (Table 8). To the degree that married couples predominate, requiring joint annuities may be a less divisive alternative to unisex tables or a way to avoid selection and market instability problems in the context of a unisex requirement. (Annuities market issues are discussed further in James et al 1999a and b and 2001a and b).

# **VI. Gender Impact of the Shift From the Old to the** New **Systems**

# **New methodological problems**

> Comparison of the new and old social security systems in Latin America is

> difficult because the old systems were insolvent and unable to provide the promised benefits. This was true in the long run of all three countries, it was true even in the short run in Chile, and Argentina was already defaulting on payments. Since we don't know what the counterfactual would have been (higher taxes? lower benefits?), it is impossible

> to determine absolute gains or losses from the change. To avoid this problem we focus on the relative positions of men and women in different educational-marital groups in the new and old systems. We ask: (1) Who gained or lost the most from the reform, in a relative sense? (2) Did the gender ratio get larger or smaller in the process of the reform? As noted earlier, these questions are consistent with any counterfactual in which the fiscal adjustment would have involved equi-proportional benefit cuts or tax increases for each group, so relative positions would have been unchanged (see previous discussion of counterfactual).

30
In addressing question #1,<sup>wecomparetheratiosof post-reform topre-reform</sup> expected lifetime benefits for<sup>eachsub-group,normalizingaccordingtotheratioforthe</sup> married man in the top educational<sup>group. Thatis, we examinehow much eachsub-group</sup> gained or lost relative to<sup>thechangeexperiencedby the high-incomemarriedman (Table</sup> 9). This enables us to focus<sup>onrelative rather thanabsolutegainsorlosses, whichis</sup> necessary given our counterfactual.<sup>In addressing#2, we compare the old and new gender</sup> ratios to see if these ratios<sup>improvedordeterioratedduetothereform(Table10).We</sup> focus on lifetime benefits because<sup>retirement agechangedas part of the reform,it differs</sup> across countries and sub-groups<sup>within eachcountry,andthe widow's benefitstartsata</sup> much later age than own-benefits.<sup>We carryout this calculationfor workers who entered</sup> the labor market after the reform,<sup>thereby avoidingall transition arrangements.</sup> Desc2pflou ofi old systems In general, the old systems<sup>provideda benefitof the followingsort:</sup> B = aYS, where: B = monthly pension benefits, Y = number of contributory<sup>years,</sup> S = average salary during<sup>last fewyears of work,</sup> a = incremental benefit per<sup>year of work.</sup> Often, a was quite high for<sup>thefirsttenyearsorso,andmuch lowerthereafter.</sup> Sometimes it provided a<sup>minimumbenefitfortenyearsof contributions.2 6Thus,this</sup> formula often provided a generous<sup>benefitfor women who workedfor only a short time</sup> and then withdrew from<sup>thelabormarket.Inourthree samplecountries,the firstten</sup> years of contributions produced<sup>a very highreplacement rate,but additionalyears added</sup> relatively little. Women<sup>weremorelikelythanmentoworkfor10-20yearsandthen</sup> leave the formal labor market.<sup>Marriedwomen whospent littletime in theformallabor</sup> market got a widow's benefit<sup>that was 50%of their husband'spension in Chile,75%in</sup> Argentina and 90% in Mexico.<sup>Inplicitly,unisex tables wereused.Womencould retire</sup> five years earlier than men<sup>with noactuarial penaltyin Chile and Argentina.</sup> In contrast to these provisions<sup>thatfavoredwomen,theoldsystemsbased</sup> their benefits on the last few<sup>workingyears,whichfavoredfull careerworkers whoare</sup> predominantly men. A woman<sup>whoworkedat ages20-30, before child-bearing,would</sup> earn no interest on her contributions<sup>andwouldfimdherpensionbasedonwagesthat</sup> 31
would appear to be very low compared with prevailing wages when she retired at age 6065 (e.g. in our baseline scenario of 2% real wage growth per year the average wage rate would have doubled over that period). In addition, using final years' salary as the reference wage especially favored workers with steep age-earnings profiles, who tended to be highly educated men. Furthermore, in Chile women had to give up their own pension to get the widow's pension, so women who worked much of their lives in the labor market got little or no incremental benefit from their own contributions. Contributions represented a pure tax for most working women, thereby discouraging their participation in the labor force. This was also the law in Argentina (law 18-037, article 68 #33) although it was very unevenly enforce there. In the new systems, women keep their own benefit as well as the joint annuity. Contributions that are made in early adulthood add more to present value ,of lifetime benefits at retirement age than contributions made in the final years. Further, as we have seen, the new public pillars are tilted toward low earners, who are predominantly women. These provisions play an important role in comparisons of new and old systems. Inflation

> Finally, the failure of the old systems to index for inflation was a major disadvantage to all workers, but especially to women. In these simulations we do did not take inflation into account, although inflation played a large role in discrediting the old systems of these countries. Pensionable salaries were based on past wages that were usually not indexed up for inflation. Once a person retired, benefits were usually not indexed for inflation. Yet, these countries had very high levels of inflation that often made their pensions worthless. Ad hoc adjustments were made, but these always lagged the pace of inflation. In fact, such lags were the major way that governments created the appearance of solvency in the old systems that were actually insolvent. The impact of inflation was very idiosyncratic, depending exactly on how adjustments were made. Usually inflation posed a particular problem for women, who may have done their market work many years in the past (prior to marriage and children) and who, after retirement, lived many years into the future. But if a minimum pension existed and was adjusted more readily than higher pensions, this would have given an advantage to women.

32
In contrast, in the new systems:<sup>(1)Financial instruments(stocks,bonds and</sup> mortgages) held by the private<sup>pillar generallyearna positiverealrate of return(that is,</sup> above the rate of inflation) in<sup>thelong run. (2)Internationaldiversificationof investments</sup> is permitted, which further protects<sup>pensionfundsfromcountry-specificinflation;(3)In</sup> Chile private annuities acquired<sup>uponretirementareindexed,asareallmedium- and</sup> long-term financial transactions-a<sup>responsetoahistoryof highinflation.InMexico</sup> public pillar benefits are price-indexed<sup>andregulationscallfor annuitiesto beindexed--</sup> but-'it is not clear whether<sup>privateinsurance companieswillbeabletoprovidethis</sup> product and if they do, whether<sup>itwillbecredibleandcost-effective (see Jameset al</sup> 2001a, 2001b).

We abstract from inflation because<sup>both the rate of priceincreaseand the typeand</sup> speed of pension adjustment<sup>were not consistentacrosscountries and even within a given</sup> country they varied considerably<sup>overtime-butthese effectswerealwaysstrongand</sup> negative. If we had taken inflation<sup>into account,thereal value of expected benefitsin the</sup> old systems would have been<sup>farlower,theincrementinvalue fromthenew system</sup> would show up as much higher,<sup>and often theseeffectswere particularlybeneficialfor</sup> women.

CemJpaErISof of lffetme beimelto unmder<sup>mew</sup><sup>_Md_</sup> _lOd_ $y$uem$ Using the old system formulae<sup>togenerate the expectedpresent value(at age65)</sup> of lifetime pensions, we start<sup>with ourfirstquestion--whogainedorlost themostfrom</sup> the change in systems? To<sup>addressthisquestion wecalculatetheratioof postand pre-</sup> reform lifetime benefits and normalize<sup>accordingto the ratiofor male workersin the top</sup> educational group. Based on<sup>the discussion to this point,we wouldexpectthefollowing</sup> groups to be the biggest gainers:

- i) low earners (as proxied by<sup>loweducational category)ofbothgendersbut</sup> especially women, who are<sup>thelowestearnersineachcategory--duetothe</sup> targeted public pillar;

- 2) single men--because they<sup>nolongerhavetosubsidizethewidow'sbenefitthat</sup> was financed from the common<sup>pool in the old systems;</sup>

33
> 3) married women who work in the labor market-because they can now keep their

> own annuity plus the joint annuity whereas previously, in Chile and Argentina, they had to give up one or the other.

In fact, that is exactly what we find. In all three countries, workers in the two lowest educational groups gain more than those in the two highest groups and married women generally gain more than married men (Table 9 and Figure 4). In Chile married full career women gain the most, because they had lost the most when they had to choose between the widow's benefit and their own benefit in the old system. In Mexico both single and married full career women gain the most, due to the work-related SQ. Over time this may induce women in general to increase their labor force participation rates and thereby to end up with higher pensions, a process that is already underway for exogenous reasons. But in Argentina the largest relative gains are registered by average and ten year women, due to its relatively large flat benefit. Thus, moving on to the second question, the comparison of female/male ratios of lifetime benefits under the old and new systems, we find that 1) gender ratios fall when only the own-annuity is taken into account; 2) results are mixed when the public and private pillars are both included; 3) they ratios rise dramatically when benefits from the joint annuity are added; and 4) in all three countries, for almost all educational categories and levels of labor force attachment, the relative position of women who get both the public benefit and joint annuity rises in the new system compared with the old, and a major reason is the fact that they do not have to give up their own pension to receive the widow's benefit (Table 10 and Figure 5).

> Given this rationale, how do single women fare? This is important since an

> increasing proportion of women are divorced or never formally married. Informal

> cohabitation is not uncommon among low educated groups in Latin America and, more

> recently, among high educated groups in the US and Europe. While our data do not allow us to model their wage and work histories directly, we use full career women without joint annuity or widow's benefit as a proxy. (Recall, however, that if wages are a function of experience rather than age we may be understating the earnings and pensions of full career women). In Argentina and Mexico gender ratios improve in the new system for

> single women in the bottom 3-4 educational categories, because of the generous public benefit that low earners receive. In Chile, where full career women don't get the MPG,

34
their relative position falls at the<sup>bottom end but risesat thetop end.Concernsaboutthe</sup> relative position of single women<sup>couldbeaddressedthroughtheuseof unisex tables</sup> (which redistributes from men<sup>towomen),throughpartialwageindexationof public</sup> benefits for the very old (which<sup>redistributestothose wholive longer),orthroughlater</sup> retirement age--at least equal<sup>towith thatof men(whichreallocatesone'sownoldage</sup> income from early to old old age).

VlIH. ¶Thae Geinieir lmnnpet<sup>of?</sup> Ieonson<sup>io Reformnthe</sup> bi msiflon Ecoomiies<sup>27</sup> At the same time that the Latin<sup>Americancountrieswere reforming their systems,</sup> the transition economies of Eastern<sup>andCentralEuropeandtheformerSovietUnion</sup> were facing huge financial strains<sup>in their systems,which requiredthem to reformalso.</sup> Thus far, Kazakhstan, Poland,<sup>Hungary,LatviaandCroatiahaveinstitutedmulti-pillar</sup> reforms and several others are<sup>in theprocess of doing so.Thedatain thesecountriesdo</sup> not allow the same sort of detailed<sup>analysisthatwehavedescribed above,butsome</sup> preliminary effects are apparent<sup>and the contrast with Latin America is illuminating.</sup> On the one hand, the magnitude of<sup>the gender gap in DC pensions is much smaller</sup> in the transition economies, due<sup>tohigher work propensities and moreuniformwages for</sup> women in this region. On the<sup>other hand,womendo notbenefit from offsetting transfers</sup> from the public pillar or regulations<sup>overpayoutsfromtheprivatepillartothesame</sup> extent as in Latin America or<sup>in the oldCommunistsystem.In mostcases (Kazakhstan</sup> being the exception) the public<sup>pillarisfarlargerandlesstargetedthanthoseinLatin</sup> America. And unlike Latin America,<sup>the joint annuity has not yet become an equalizerof</sup> lifetime pensions between the<sup>genders.As a result,in the transitioneconomies, projected</sup> monthly and lifetime pensions<sup>for women areless thanthosefor menin the newsystems,</sup> while they were very close previously.<sup>Gender inequalityappearstobeincreasingasa</sup> result of the new systems interacting<sup>with new labor market behaviors.</sup> While the details of the pension<sup>reformsvaryacrossthedifferenttransition</sup> economies, they have certain features<sup>incommon:1) acloserlinkagebetweenbenefits</sup> and contributions through the<sup>adoptionof a DCpillar;2)a publicpillar thatissmaller</sup> than it was before but is nevertheless<sup>(except forKazakhstan)muchlargerand less</sup> 35
> targeted toward low earners than that in most Latin American countries; 3) a higher-but still quite low and not equalized--retirement age for women and men; 4) a reduction in special privileges for women that previously existed, such as pension credits for time spend on maternity leave or child care; 5) a weakening and in some cases elimination of survivors' benefits and a continuation of the old system prohibition on receiving ownpension and widow's pension simultaneously; and 6) an absence of firm decisions, so far,

> on how the annuity stage of the private pillar will be handled.

> Thus, the public pillar in most of these countries is not meant to be an instrument of redistribution to women and low earners, as in Latin America. Rather, equity has been defined as personal responsibility and payment in line with work and contributions, in both pillars. As for private intra-household transfers, it is expected that unisex and joint annuities will play a large role, but this has not yet been legislated in most of the region.

> Moreover, many couples live together without legal marriage, and divorce is more

> common than in Latin America, so the problem of single older women looms larger in the transition economies. Finally, unlike Chile, these countries lack the indexed financial

> instruments that would enable low cost indexed annuities.

> Given the close linkage between benefits and contributions both in the public and private pillars, labor force participation rates, wage rates and retirement age now matter. Yet, just as they begin to matter, a growing gap has appeared in the work histories of men and women. This combination of forces means that projected pension gender ratios have fallen to 50-60% or even less. Simulations for Poland (by Chlon in Woycicka 2001) indicate that pensions received by women would be only 45% as much as those of men if

> gender-specific mortality tables are used for annuitization. This increases to 57% if

> unisex mortality tables are used for annuitization, and 73% if retirement age is equalized at 65 and women work 4 out of the 5 extra years. The remaining differential of 27% is

> due mainly to wage disparities between men and women. These gender ratios may be

> compared with much higher numbers under the old system: 81% based on current labor market behavior and 95-100% with old behavior.

In Poland and several other transition economies, joint annuities are not yet required, although they are under consideration. In general, it is not clear whether indexed annuities and unisex tables will be mandated and, if so, whether the necessary ancillary 36
steps (such as issuing indexed government<sup>bondsandsetting upa riskadjustment</sup> mechanism) will be taken to make<sup>them feasible.If survivors' benefitsare weakened,if</sup> joint annuities are not required, if women<sup>mustchoosebetweenownbenefitandthe</sup> widow's benefit from the public<sup>pillar,andif fewerwomenaremarriedanyway, then</sup> older women may face a problem<sup>inmaintainingtheirstandardoflivingandveryold</sup> women may find themselves living<sup>close to the poverty line.</sup>

# VlHI. 0oEndm¢onof

Our empirical investigations show<sup>that(1)women'sown-annuitiesarelowerthan</sup> those of men in multi-pillar pension<sup>schemes,but (2)women arerecipientsof net public</sup> transfers and private intra-household<sup>transfersthatraisetheirrateofreturnon</sup> contributions above that of men. As a<sup>resultof theseforces(3)womenarethemajor</sup> recipients of redistributions and<sup>havegained morethanmenfromthereforms-the</sup> lifetime gender ratio has improved.<sup>Theseredistributionsandimlprovedgender ratios</sup> stem from the targeting of the<sup>publicpillarstowardlowearnersand,evenmore</sup> important, from regulations over payouts<sup>from the private pillar.Womentendto below</sup> earners, hence beneficiaries of targeting<sup>in the new publicpillars.Women tendto outlive</sup> men, so restrictions on payouts systematically<sup>redistributefrom husbands to wives.Joint</sup> annuity requirements play the largest<sup>role.Thesetransfers,takentogether,raise women's</sup> lifetime pensions to a level that is 60-80%<sup>thatof men and100%or morefor fullcareer</sup> married women. Women get a higher<sup>rateof return than men in the newsystemsanda</sup> higher relative benefit than they did<sup>intheoldsystems.Thegendergapisnarrowed</sup> further for women who live during<sup>periodsofslowgrowth,since disparateown-</sup> accumulations are smaller and the equalizing<sup>public pillar is relatively larger.</sup> Some caveats: While women as a group<sup>gained in our three Latin Americancountries,</sup> different groups of women benefited<sup>the most ineach case andsome gapsemerge.Single</sup> women and those cohabiting without<sup>aformal marriagecontractreceivemuch lower</sup> lifetime benefits than men or married<sup>women, because they have lower wages and greater</sup> longevity than men and don't gain<sup>fromthe joint annuity,as do marriedwomen.Even if</sup> they work full career, their pensions<sup>will be relatively low solong as their wage ratesand</sup> 37
retirement age remain relatively low. The fact that women can keep their own-annuity in addition to the joint annuity encourages formal sector work for married women and may induce an increase in their labor force participation rates and pensions over the long run. But the terms of the reduced flat benefit in Argentina and the MPG in Chile could discourage such work by low earning women after 10 and 20 years of contributions, respectively. Moreover, the earlier allowable retirement age of women in Chile and Argentina further reduces their incentive to work and may leave them with a relatively small income in very old age.

All workers, and especially women, benefit from the fact that the private pillar earns a rate of return that will generally exceed the rate of inflation and, in Chile, can be converted into a price-indexed annuity upon retirement. They also benefit from the priceindexed public benefit in Mexico. However, automatic price indexation is still missing in Chile and Argentina, which could hurt very old women. Moreover, since the public benefit isn't wage-indexed it will not rise in real value through time, it will gradually diminish in size relative to workers' wage and own-annuity, and its equalizing impact will disappear for future generations. (Chile has increased the MPG with wages on an ad hoc basis, perhaps facilitated by the relatively low cost of its MPG, and offers a 10%r MPG increment for very old pensioners).

Finally, this paper has dealt with women who are in or have husbands in the contributory social security system. It does not deal with the large group of rural women in low-income countries who do not meet these criteria and may have little income or savings when they become old. A non-contributory program is needed to supplement the family system and keep these women out of poverty. This complex topic goes beyond the purview of this paper.

The favorable outcome that we have just described for women in Latin America contrasts with outcomes in the transition economies of Eastern Europe and the former Soviet Union, where preliminary investigations suggest that women lost from the reform, due to the removal of privileges they had in the old system, the absence of a targeted public pillar in the new system, the weakening of survivors benefits and the failure to require joint annuities, as of yet (Castel and Fox 2000; Woycicka 2001). Thus, the gender 38
impact of multi-pillar systems is not pre-ordained;<sup>it dependsondetaileddesignfeatures</sup> of these reforms. Specifically:

- a Because of labor market factors, a redistributive<sup>publicpillar isparticularly</sup> important to older women.

- Dangers to be avoided are eligibility rules<sup>thatexcludewomenor discourage</sup> their formal sector work.

- Indexation provisions determine whether<sup>old old women andfuture cohorts of</sup> women will continue to benefit from the public pillar.

- a Because of demographic factors, joint annuities<sup>playa majorroleinmaintaining</sup> the living standards of older married women, who<sup>are likely to becomewidows.</sup>

- This role is particularly constructive if the<sup>jointannuitiesareadditive to the</sup> own-annuity and therefore do not penalize formal work by<sup>women.</sup>

- Careful attention needs to be given to joint<sup>payoutrules incasesof divorce or</sup> cohabitation without marriage.

- Equalizing the retirement age between men and<sup>womensubstantiallynarrowsthe</sup> gender gap in monthly pensions, without requiring<sup>publicor private transfers.</sup> o It ensures that lifetime retirement savings<sup>are allocatedto old oldage instead</sup> of young old age, and may encourage additional<sup>work and savings.</sup>

- It is especially important for single women<sup>whowillnot receivea boostto</sup> their incomes from the joint annuity.

These policy implications are broadly generalizeable<sup>toall countriesthat haveadopted</sup> multi-pillar systems. 28 For those who are married, a key social<sup>choiceconcernsthedivisionof</sup> responsibility between the family and society<sup>at largeforthe welfareofolder women</sup> who have spent much of their lives providing<sup>householdservices.Solutionssuch as joint</sup> annuities, earnings-sharing and viewing retirement<sup>savings ascommunity propertyin</sup> case of divorce come down squarely in favor of<sup>familyresponsibility thatis legally</sup> enforced. In contrast, solutions that grant generous<sup>credits forthefirst10yearsof</sup> contributions and additional credits for years of<sup>child-careorelder care, financedby the</sup> common pool, are implicitly a statement that much of<sup>the benefitsfrom theseactivities</sup> are external to the family directly involved, so the costs<sup>should also be borne externally.</sup> 39
For single women who do not benefit from the joint annuity, solutions are more difficult because the pension differential stemming from the wage differential will remain, even if they work full career. This applies to any earning-related scheme, whether public or private. Both for single and married women, a complex collective choice must be made about competing social objectives and redistributive goals. Is the main policy objective to: 1) keep older women out of absolute poverty, 2) keep them out of relative poverty (compared with the average wage level in society) or 3) achieve greater gender equality in monthly pensions, even above the poverty line? Which design pattern is "best" depends on value judgments that are inherent in these differing definitions of "equity" and the willingness to trade-off equity for work incentives and lower fiscal costs. In our sample countries women as a group have gained substantially from the targeted public pillar and the formalization of family responsibility in the new systems, but different sub-groups have benefited the most in each case and controversial issues concerning work incentives for women and protection for single, very old and future generations of women still remain.

40
T1 able I-Maanm featuinres of GiRd amid New Systemms' A. Clbnle

||GRdSystemn<br>|Newsystem<br>|
|---|---|---|
|Structure|PAYGDB|PillarII:fundedindividualaccounts<br>(IA's)<br>PillarI:minimumpensionguarantee<br>(MPG)<br>|
|Contributionrate|26%<br>|13%toPillar 1[;<br>I_PGfinancedfromgeneralrevenues<br>|
|Benefits|50%ofbase salary+<br>1%foreveryyear>10<br>uptomaximumof70%<br>basesalary<br>.<br>|Pillar1I:annuity fromIA<br>PillarI:MPG<br>|
|Basesalary|Averageoflast5years<br>(final3yearsindexed)|Notrelevant<br>|
|Pensionableage|Men-65; women-60|Men-age65; women-60<br>|
|Yearsforeligibility|10years|20yearsforMPG;nominimumforIA<br>|
|Pensionifworked<br>feweryears|0<br>_|AnnuityfromIAaccumulation<br>|
|Indexation provisions|Noindexation|PriceindexationofannuityinPillarII<br>AdhocincreasesofMPG<br>|
|Minimumpension|Nominimum<br>|MPG (about27%ofmaleaverage<br>_wage)after 20years<br>|
|Widows|50%ofhusband's<br>pensionorownpension|60%ofhusband'spension(joint<br>annuity)+ownannuity|

# Notes:

1. Contribution rates given for individual<sup>accountsforChileandArgentinainclude</sup> approximately 3% of payroll for survivors and<sup>disabilityinsuranceplusadministrative</sup> costs. For Mexico the contribution rate<sup>doesnotincludesurvivorsand disability</sup> insurance, which are handled separately.

41
|**B.Argentina'**|**OldSystem**|**NewSystem**|
|---|---|---|
|Structure|PAYGDB|PillarII:fundedindividual<br>accounts(IA's)_or_publicDB<br>PillarI:flatorreduced flat<br>benefit|
|Contributionrate|27%(lowerbefore1994)|11%toPillarII<br>6-16% toPillarI(varies by<br>regionandtime)|
|Benefits|JO:70%ofbasesalary+<br>1%foreveryyearover30;<br>JEA:50%ofbase+1%for<br>everyyearover10|PillarII:AnnuityfromIA;_or_<br>publicDB(.85%*yearsof<br>service*salary)<br>PillarI:flat=about30%of<br>maleaveragewage+1%extra<br>for yrs>30;_or_reducedflatat<br>age70(21%ofaveragewage)|
|Basesalary|Averageof3highestannual<br>salarieswithinlast10yrs|ForpublicPillarII:averageof<br>last10yearswage;not<br>relevantforprivatePillarII|
|Pensionableage|JO:Men-age60;women-55<br>JEA: age65|Men-age_65;_women-60;<br>Reducedflat:age70|
|Years foreligibility|JO:20yearscontributions<br>(15before1991);<br>JEA:10yearsservice|30years forflat benefit<br>10yearsfor reducedflat<br>nominimumforIA|
|Pensionifworkedfeweryrs|0|Annuityfrom IAaccumulation|
|Indexationprovisions|Adhoc|Public benefitadhoc(has been<br>constant);<br>Privateannuitynotindexed|
|Minimum pension|$150after10years'service|$140after10years'service|
|Widows|75%ofhusband'spension<br>_and/or_ownpension|70%ofhusband'spension<br>(jointannuity)+ownannuity|

# Notes:

1. Argentina had special provisions for the self-employed and many special regimes. We focus here on the main schemes for employees: JO= Jubilacion Ordinaria; JEA = Jubilacion por Edad Avanzada. The JO applied to those with 20 years of contributions, while the smaller JEA applied to those with 10-20 years of contributions. However, the old scheme changed frequently and wasn't always implemented as written, especially in the absence of records. Widow's benefit was treated unevenly. The new system also has an ordinary flat benefit for 30+ years of service and a reduced flat for 10-30 years of service. However, the government is considering tightening conditions for the reduced flat.

42
# C. Meidco

||(ildsystemi|NewSystemi<br>|
|---|---|---|
|Structure|PAYG DB|PillarII:Fundedindividual<br>accounts(IA's)<br>PillarI:Socialquota(SQ)+<br>minimumpensionguarantee<br>MPG)<br>|
|Contributionrate|8.5%(incl..425%from<br>govt.)+2%(SAR, 1992)|6.5%(incl..225%from govt.)<br>+5.5%ofminimumwage<br>from govt(SQ)+5%to<br>INlFONAVIT;SQ+MPG<br>financedfromgeneral<br>revenues'<br>|
|Benefits|DB:80-100%ofbasesalary<br>(formulaonseparatepage)|PillarII:annuityfrom IA+<br>llIFONAVIT<br>PillarI:annuityfromSQ+<br>MPG|
|Basesalary|Averageoflast250<br>workingweeks|Notrelevant<br>|
|Pensionableage|65|65<br>|
|Yearsforeligibility|10years|25 yearsforMPG;no<br>minimumrequirementforIA<br>|
|Pensionifworkedfeweryrs|0|AnnuityfromIAaccumulation<br>|
|Indexationprovisions|none|Annuity, SQandMPGare<br>price-indexed<sup>2</sup>|
|Minimumnpension|1minimum wageafter10<br>years'contributions <sup>2</sup>|1minimumwageafter25<br>years'contributions <sup>2</sup><br>|
|Widows|90%ofhusband'spension<br>+ownpension|60%ofhusband'spension<br>(jointannuity)+ownannuity|

## Notes-

1. The social quota started at 2.2% of<sup>theaveragewage.Inthefuture,if the</sup> minimum wage goes up with price inflation<sup>while the averagewage risesfaster because</sup> of real wage growth, this percentage<sup>willfall. INFONAVIT is a housingfund from which</sup> workers can borrow to help finance<sup>thepurchaseof ahome.Thisexistedbeforethe</sup> pension reform. As part of the reform,<sup>any balance in the worker'sINFONAVIT account</sup> at time of retirement is incorporated<sup>intotheperson'sretirementaccount.Therateof</sup> return on INFONAVIT has been<sup>verylow-lessthantherateofinflation. Thus,</sup> INFONAVIT will add something<sup>totheworker'spension,butmuchlessthana5%</sup> contribution to the retirement account<sup>would.</sup>

2. Under the old system the minimum<sup>pension=minimumwage. Linkageof</sup> minimum wage to average wage was<sup>adhoc.Undernewsystem,SQand MPGare</sup> formally linked to CPI. Mexico also<sup>plans forprivateannuity to beprice-indexedbut</sup> feasibility and cost remain to be determined.

43
**TABLE 2: Basic Demographic and Economic Data**

|**SummaryData**|**Arg**|**entina**|**Ch**|**ile**|**Me**|**xico**|
|---|---|---|---|---|---|---|
||**men**|**women**|**men**|**women**|**men**|**women**|
|**1.Amongworkingage**<br>**population(16-65):**<br>|||||||
|**%**currentlyemployed<br>|70.8%|40.0%|75.2%|38.0%|83.7%|44.1%|
|%ever employed|n.a.|n.a.|89.8%|70.5%|92.6%|78.5%|
|%affiliatedtoSSS<br>|75.5%||66.6%|41.6%|31.6%|14.6%|
|**2.Amongolderpopul.**(60+):<br>|||||||
|%who receive ownpension|49.7%|48.3%|67.6%|35.4%|30.5%|5.4%|
|%who receive otherpensions<br>|||4.4%|25.6%|.03%|9.4%|
|%who live inextendedfamilies|22.3%|36.6%|42.8%|52.5%|35.9%|44.6%|
|%whogetmonetarytransfers<br>fromextendedfamily<br>|7.7%|6.2%|NA|NA|_15.0%_|17.5%|
|**3.Lifeexpectancy:**<br>|||||||
|Atage60(genderspecific)<br>|17.8|22.5|19.1|22.8|19.2|22.3|
|Atage65(genderspecific)<br>|14.5|18.4|_15.5_|18.9|15.8|18.5|
|Unisexatretirement age|16.5|20.2|17.2|21.0|17.0|17.0|
|4.**Wagesandpensions:**<br>|||||||
|Averagemonthlywage(US$s)<br>|$661|$445|$335|$245|$299|$214|
|MinimumW.(as%ofaverage)|30.3%|44.9%|37.6%|51.4%|33.1%|46.3%|
|MPGorflat(as%ofav.wage)<br>|30.3%|44.9%|27%|37.2%|33.1%|46.3%|
|SocialAssistancePension<br>|NA|NA|12.8%|17.6%|NA|NA|
|Povertyline(as%ofav.Wage)|23.6%|35.1%|21.8%|29.9%|NA|NA|

# **Data sources and notes:**

For section 1, numbers are for urban population in household surveys described in Appendix B. Data are from 1994 (Chile), 1996-97 (Argentina), and 1997 (Mexico). Affiliation to the social security system in Argentina is from SAFJP: "Proyecto Indicadores de Control Previsional Etapa 2 - Informe Final." (1999).

For section 2, Chile and Argentina, numbers are from surveys described in Appendix B. For Argentina breakdown between own and other pensions is not available. For Mexico, data refer to country as a whole, from Parker and Wong (2001), using household survey data. Own pensions refer to old age, disability and severance; other pensions refer to widows and survivor benefits.

> For section 3 data are for population as a whole; for Chile and Argentina from CELADE

> (1998), "American Latina: Proyecciones de Poblacion 1970-2050," Demographic Bulletin 61; for Mexico from Partida, Virgilio, 1998 (CONAPO, Mexico).

For section 4, data refer to our sample and sample dates, as described in Appendix B (minimum wage, MPG and flat decline through time as % of average wage due to price indexation). In Argentina and Mexico there is no social welfare program targeted towards the elderly. The Mexican program (Progresa) is targeted towards families with children.

Argentinean currency is converted to US$s at 1997 exchange rates, 1 for 1. In 2002, peso fell to 25-30% of US$, so wage and pension values would be 25-30% of stated values. Exchange rate for Chile was Ch$413.45=US$1 and in Mexico 8 pesos=US$1.

44
¶able 3: E dmated Yeaira<sup>of co</sup> btnfdolmo lby Age, Ede1ulom momd Gemier A. ChITei

|MlRes<br>Age<br>|||_<br>_<br>__<br>||_<br>__<br>5i|
|---|---|---|---|---|---|
|i<br>p<br>|meompRele<br>rimU<br> <br>|imtompRiete<br>secomdairy<br>|ConepRete<br>secoidaMry<br>|unpto4poet<br>seco_md_r_<br>|+yeanpost<br>_eco____<br>|
|16- 20<br>|3.37<br>|3.02<br>|1.65<br>|1.28<br>|0.00<br>|
|21- 25<br>|3.65<br>|3.89<br>|4.19<br>|4.07<br>|2.79<br>|
|26- 30|3.63<br>|4.13<br>|4.49<br>|4.32<br>|4.46<br>|
|31- 35<br>|3.84<br>|4.29<br>|4.70<br>|4.70<br>|4.87<br>|
|36- 40|3.97<br>|4.30<br>|4.69<br>|4.62<br>|4.90<br>|
|41- _45_<br>|4.40<br>|4.35<br>|4.53<br>|4.47<br>|4.75<br>|
|46- 50|3.89<br>|4.24<br>|4.12<br>|4.23<br>|4.71<br>|
|_51_-_55_<br>|3.74<br>|4.20<br>|3.97<br>|4.01<br>|4.77<br>|
|56-60|3.03<br>|3.32<br>|3.70<br>|3.83<br>|4.66<br>|
|61- 65<br>|2.46<br>|2.31<br>|2.25<br>|3.34<br>|3.06<br>|
|Total16-65|35.98|38.05|38.29|38.97|38.97|
|YenMnaRes<br>A||||||
|ge||||||
|16- 20|3.64<br>|2.85<br>|1.39<br>|1.21<br>|0.00<br>|
|21-25|3.20<br>|3.66<br>|3.92<br>|3.91<br>|3.26<br>|
|26- 30|2.96<br>|3.52<br>|3.33<br>|3.78<br>|4.61<br>|
|31- 35|1.64<br>|1.92<br>|2.94<br>|3.74<br>|4.23<br>|
|36- 40<br>|2.35<br>|2.83<br>|3.37<br>|3.71<br>|4.82<br>41|
|_41-_ 45|2.44|2.91<br>|3.37<br>|4.37<br>|.6<br>|
|46- s0<br>|2.09<br>|2.21<br>|3.38<br>|3.36<br>|4.65<br>|
|52_-55_|2.54|2.331<br>|2.47<br>|3.44<br>|4.63<br>|
|56- 60<br>|1.63<br>|1.85<br>|2.38<br>|4.16<br>|3.96<br>128|
|61- 65|0.93|0.11<br>|0.25<br>|0.24<br>|.<br>|
|Totall16.65|23.42|24.17|26.80|32.92|36.05|

# Notes:

1. Based on labor force experience<sup>of a cross-section of adults in urban areaswho</sup> worked at some points and<sup>are affiliatedto the socialsecurity system.</sup>

We assume that the "typical"<sup>manandwoman withineach schooling category</sup> accumulates contributions<sup>asasinglepersonfirst,getsmarried,and continuesto</sup> accumulate contributions<sup>asamarriedpersonafterwards. Themarriageageforthe</sup> "typical" man and woman<sup>istheageatwhich50%ofthe correspondingcategoryis</sup> married. See Appendix B<sup>for more details on data sources.</sup> 45
## B. Argentina'

Males

|Age||**Sch**<br>**_o_ine**<br>|<br>|||
|---|---|---|---|---|---|
||**Incomplete**<br>**primary**<br>|**Incomplete**<br>**secondary**<br>|**Complete**<br>**secondary**<br>|**upto4 post**<br>**secondary**<br>|**5+yearpost**<br>**secondary**|
|**16- 20**<br>|3.25<br>|2.33<br>|3.85<br>|1.67<br>|0.00|
|21- 25<br>|3.94<br>|4.53<br>|4.53<br>|3.17<br>|4.69|
|26**-** 30<br>|4.27<br>|4.78<br>|4.85|4.39|4.92|
|31- 35<br>|4.20<br>|4.87<br>|4.93|4.73|4.94|
|36**-** 40<br>|4.66<br>|4.75<br>|4.89<br>|4.97|4.90|
|41- 45<br>|4.68<br>|4.80<br>|4.87<br>|4.94|4.89|
|46**-** _50_<br>|4.54<br>|4.68<br>|4.86<br>|4.86|4.93|
|_51_**_-_** _55_<br>|4.29<br>|4.51<br>|4.42<br>|4.64|4.81|
|56**-** 60<br>|3.86<br>|3.99<br>|3.96<br>|3.88|4.65|
|61-65<br>|1.24<br>|1.41<br>|1.66<br>|1.89<br>|2.08|
|**Total16-65**|38.93|40.74|42.82|39.14|40.86|

Females

|**Age**<br>_<br>|<br>_<br>_<br>_<br>_<br>||_<br>_<br>_<br>_<br>_<br>_<br>|||
|---|---|---|---|---|---|
|16**-** 20<br>|1.60<br>|1.31<br>|3.27<br>|1.16<br>|0.00<br>|
|21-25<br>|1.11<br>|2.44<br>|4.32<br>|2.92<br>|4.58<br>|
|26**-** 30<br>|1.87<br>|1.91<br>|2.22<br>|3.72<br>|4.63|
|31**-** 35<br>|2.10<br>|2.30<br>|2.62<br>|3.61<br>|4.31<br>|
|36**-** 40<br>|2.32<br>|2.47<br>|2.65<br>|2.89<br>|4.18|
|41**-45**<br>|2.58<br>|_2.55_<br>|2.93<br>|3.98<br>|4.18<br>|
|46**-**50<br>|2.37<br>|2.53<br>|2.93<br>|3.75<br>|4.61|
|_51_**_-_** _55_<br>|2.12<br>|1.88<br>|2.29<br>|3.15<br>|3.97<br>|
|56**-** 60<br>|1.38<br>|1.70<br>|1.63<br>|2.54<br>|3.31<br>|
|61-65<br>|0.47<br>|0.44<br>|0.40<br>|0.77.<br>|1.34<br>|
|**Total16-65**|17.92|19.53|25.26|29.49|34.43|

# Notes:

1. Based on labor force experience of a cross-section of adults in urban areas covering most of the Argentine population. On marital status see footnote for Chile. For data sources see Appendix B.

46
|||I$lnoolfin<br>J<br>|<br>||13|
|---|---|---|---|---|---|
|Ae:v|0-5|6-0|9|1012|+|
|Mem||_<br>_||||
|16-20|4.38|4.29<br>|4.17<br>|3.51<br>|2.96<br>|
|21-25|4.62|4.78<br>|4.78<br>|4.47<br>|3.80<br>|
|26-30|4.85|4.95<br>|4.90<br>|4.95<br>|4.72<br>|
|31-35|4.89<br>|4.88<br>|4.93<br>|4.90<br>|4.95<br>|
|36-40|4.89|4.87<br>|4.93<br>|4.88<br>|4.87<br>|
|41-45|4.82|4.88<br>|4.86<br>|4.85<br>|4.91<br>|
|46-50|4.71<br>|4.63<br>|4.68<br>|4.78<br>|4.80<br>|
|51-55|4.48|4.41|4.39<br>|4.46<br>|4.49<br>|
|56-60|4.10|3.84<br>|3.85<br>|4.04<br>|4.24<br>|
|61-65|3.26<br>|2.79<br>|3.06<br>|3.04<br>|3.06<br>|
|7ofrO<br>16-65:|45.00|44.33|44.55|43.89|42.83|
|Women_<br>Age:|||||323|
|16-20|3.44|3.99<br>|3.89<br>|3.64<br>|.<br>|
|21A25|_1.55_|1.50<br>|2.55<br>|3.72<br>|3.85<br>|
|26-30|1.90<br>|1.70<br>|1.90<br>|2.30<br>|3.65<br>|
|31-35|2.57<br>|2.02<br>|2.10<br>|2.42<br>|3.40<br>|
|36-40|2.30<br>|2.23<br>|2.42<br>|2.73<br>|3.26<br>349|
|_41-45_|2.34|2.24<br>|2.60<br>|2.59<br>|.<br>|
|46-50|2.07<br>|2.05<br>|2.05<br>|2.54<br>|3.41<br>|
|51-55|2.11<br>|1.65<br>|1.81<br>|1.75<br>|2.81<br>|
|56-60|1.57|1.39<br>|1.74<br>|1.65<br>|2.32<br>|
|61-65|1.08|1.17<br>|0.79<br>|-<br>1.00<br>|2.29<br>|
|lToRal16-65:|20.93|19.92|21.90|24.36|31.71|

# Nones:

Based on data from "more<sup>urban"areasdefinedascommunities with 100,000 peopleor</sup> more. On marital status<sup>see footnotefor Chile. For data sources seeAppendix B.</sup> 47
Table 4: Average Monthly Wage by Age, Education and Gender

# **A. Chile-Urban areas (in 1994** US$'s)1 Males

||AgeS|chooling||||
|---|---|---|---|---|---|
||incomplete<br>p__~rimary|incomplete<br>secondary|Complete<br>secondary|upto4post<br> <br>secondary<br>|5+yearpost<br>secondary|
|16**-** 20|$119|<br>$150|$176|<br>$184||
|21**-** 25<br>|148|<br>176|215|<br>288|$758|
|26**-** 30|163|<br>204|261|376|866|
|31**-** 35|169|230|323|473|1,166|
|36**-** 40|184|251|367|<br>541|1,268|
|41**-** 45|214|280|423|601|1,307|
|46**-** 50|227|347|535|653|1,556|
|51**_-_** 55|220|310|488|599|1,441|
|56**-** 60<br>|224|<br>329|479|<br>681|1,313|
|61**-** 65|197|297|391|582|1,242|
|Females<br>16A-20<br>|$117|$116|$152|$161||
|21**-** 25|120|147|183|231|$433|
|26**-** 30|129|143|200|<br>405|561|
|31**_-_** 35|128|160|220|<br>315|629|
|36**-** 40|126|169|260|334|737|
|41**-** 45|141|192|332|<br>435|756|
|46**-** 50|147|202|326|506|514|
|51**-** 55|152|183|379|374|537|
|56**-** 60<br>|154<br>|227<br>|408|363|686|
|60**-** 65|142|152|283|381|883|

# Notes:

1 In 1994, US$1 = $413.45 Chilean.

Wage estimates are for full time workers in urban areas. Monthly wages would be somewhat lower if part-timers were included; however, most affiliates who work, work full time. For sources see Appendix B.

48
||oemopReteA<br>gzmaCy<br>s|imccmpRele<sup>C</sup><br>eecimisair<br>s|<sup>omIRel</sup><br>e<br>M<br>ecomD2ftr|Pto4<br>q<br>0$6<br>R+<br>g|yearpost<br>esdC<br>_ecomftiry_|
|---|---|---|---|---|---|
|16- 20<br>|$177<br>|$264<br>|$314<br>|$391<br>||
|21- 2§|314<br>|425<br>|466<br>|504<br>|$1,083<br>|
|26- 30|357<br>|_509_<br>|696<br>|743<br>|1,305<br>|
|31- 3§|461<br>|_599_<br>|854<br>|961<br>|1,635<br>|
|36- _40_|427<br>|612<br>|992<br>|1,126<br>|1,847<br>|
|41- _4§_|475<br>|711<br>|1,009<br>|1,089<br>|2,327<br>|
|46- s0|504<br>|700<br>|1,105<br>|1,471<br>|2,103<br>|
|__- §§|470<br>|677<br>|1,324<br>|1,163<br>|2,082<br>|
|§6- 60|457|707<br>|833<br>|821<br>|2,014<br>|
|61- 6§|370|581|871|888|2,192|
|lFemngaRe<br>||||||
|Age<br>||||||
|16- 20|$174<br>|$207<br>|$303<br>|$238<br>||
|21- 25|200<br>|304<br>|366<br>|433<br>|$712<br>|
|26- 30|214<br>|320<br>|440<br>|548<br>|948<br>|
|31- 3§|315<br>|348<br>|620<br>|586<br>|965<br>|
|36- 40|339|385<br>|638<br>|647<br>|985<br>|
|_4a- 4§_|308|388<br>|643<br>|827<br>|1,021<br>|
|46- s0|280<br>|349<br>|666<br>|704<br>|1,349<br>|
|5H- §S|309<br>|368<br>|589<br>|835<br>|1,416<br>|
|§6- 60|264<br>|369<br>|684<br>|593<br>|967<br>|
|60- 65|249|360|1,114|982|1,630|

# Notes:

1. In 1996, US$1 = 1$ Argentinean.<sup>In 2002, US$1= 3-4$Argentinian.</sup> Wage estimates are based on<sup>all workers (both full time and part time) in metropolitan</sup> areas. For sources see Appendix<sup>B.</sup>

49
# **C. Average Monthly Wage, Mexico- More-Urban Area (in 1997 US$)'**

|**Men**|**Years**|**ofeducati**|**on**|||
|---|---|---|---|---|---|
|**Age**|**0-5**|**6-8**|**9**|**10-12**|**13+**|
|16-20|$125|$131|138|142|162|
|21-30|172|186|212|262|392|
|3140|195|225|257|338|643|
|41-50|210|243|327|386|773|
|51-60|193|273|335|438|815|
|**61-65**|174|245|413|722|957|

**Women**

|16-20|$98|117|122|145|148|
|---|---|---|---|---|---|
|21-30|115|125|150|214|309|
|3140|113|134|175|267|420|
|41-50|109|172|210|293|478|
|**51-60**|**117**|_156_|184|350|513|
|**61-65**|92|109|_|31||

# Notes:

1 In 1997 1 US$ = 8 Pesos. Estimates are for average monthly wages received by persons employed for pay in more urban areas in 1997.

2 Average in the cell obtained from fewer than 30 observations; numbers should be used with caution.

50
|labiReS.EUma<br>(]B3asedIonn§%<br>re|EtedM<br>turimAia<br>|oimtlnlby<sup>A</sup><br> accomullaD<br> <br>|<sup>mnmnni</sup><br>otiO<br>s<br>ClniR<br>|<sup>tesfromm</sup><br>tage,4%<br>e9 ¶996<br> <br>|fIiM&<br>l/m&Dnr<br> 1U$$|AdUMAc<br>unihtygte,<br> <br>|conlt$ 2%r<br>|t<br>el2wage<br>|growth<br> <br>|)<br> t|
|---|---|---|---|---|---|---|---|---|---|---|
||limeom<br>_|przDn_|plete<br>|l<br>_lry_<br>|e<br>|RIMCom<br>coodl<br>|pRete<br> <br>ary<br>|eco<br>|opiln<br>m<br> <br>|ete<br> <br>ary<br>| <br>|ULJpto <br>se¢oid1|post|+<br>a1ry<br>||<br>yrs<br>ecomd|pos<br>ary|
|||A|vera <br>|emnrere<br>|dll<br>maR<br>|e<br>|710||$1636||
|Amnmuty,lA=65|$236||$342|_1_|510||||,||
|||||FemiaRe$|||||||
|AverageTemell$es,||||<br>|||||||
|IRA=60|76|(32%)|106|(31%)<br>|186|(37%)|308|(43%)|565|(35%)|
|Averagewommaniff<br>RAD=65|112|(470/%)|152|(45%)|270|(53%)|445|(63%)|836|(51%)|
|FulHlcreer<br>womra,RA-=65|172|(73%)|232|(68%)<br>|376|(74%)|516|**(73%)**|888|**(54%)**|
|_10-yearwoimam,_<br>EAD=60|31|(13%)|42|(12%)|56|(11%)|89|(14%)|158|(10%)|
||||AArge<br>|mtan9,1996<br> <br>|<br>US<br>|$ <br>|||<br>l|i|
||neomp<br>_jpnrii_|Dllete<br>_nry_<br>j|McoM<br> Seoin|pllete<br> <br>aryJ|Comp<br> se¢oo|ete<br> <br>muEy|Some<br>secom|post-|<br>iryJ|<br>mve<br> elegre|rsEty<br>e|
||||Averag|emnmied<br>|mma<br>|leg<br>|||2319||
|ASXERy,IRA=65|507|||7721|1,156||1,198||,||
|||||YemlaRes|||||||
|Averagewommza,|||||||||||
|1RA=60<br>|107|(21%)|154|(20%)|304|(26%)|424|(35%)|830|(36%)|
|Averagewomaimff<br>**IEA=65**|158|(31%)<br>|227<br>|(29%)<br>|447<br>|**(39%)**<br>|624<br>|**(52%)**<br>|1217<br>|(52%)<br>|
|IFC,RA=65|342<br>|(67%)<br>|471<br>|(61%)<br>|770<br>|(67%)<br>|805<br>|(67%)<br>|1300<br>|(56%)<br>|
|10-yerT9RA=60|54|**(11%)**|68|(9%)|63|(**5%)**|106|(9%)|200|(9%)|
|Mcmo|-nmior<br>|<br>Unib<br> <br>|n,_119_<br>|_97_US$9 <br>|]A=6<br>|5<sup>form </sup><br>|<sup>eimiim</sup><br>|<sup>dwomen</sup><br> <br>|m<br>||
||_1|0-§<br>|6-0|1|9||0-112|<br>|113+||
|||<br>|Averag<br>|emairrn<br>|edma<br>|fles<br>|||||
|AiuAmty<br>||216||251|J|309||389||665||
|||||1Fenm&Re<br>|z<br>||||||
|Averagewomani|65|(30%)|77|(31%)|103<br>|(33%)<br>|166<br>|**(43%)**<br>|339<br>|_(51%)_<br>|
|FCwomanm|135|(63%)<br>|167|(67%)<br>|205<br>|(66%)<br>|302<br>|(78%)<br>|464<br>|(70%)<br>|
|110-yearwomai<br>|38<br>|(18%)<br>|43<br>|(17%)<br>|**50**<br>|(16%)<br>|66<br>|(17%)<br>|89<br>|(13%)<br>|
|<br>Fornotes see Append<br>inMexicoarenotin<br>|ixB. <br>cluded<br>|<sup>**MPG**inC</sup><br> <sup>inthis</sup><br>|<sup>hile, f</sup><br><sup>table. </sup><br>|<sup>latbenef</sup><br><sup>Numbers</sup><br>|<sup>itinA</sup><br><sup>inp </sup><br>|<sup>rgentina</sup><br><sup>arenthese</sup><br><sup>li </sup>|<sup>andpa</sup><br><sup>sgive</sup><br> <sup>$</sup>|<sup>rtofann</sup><br> <sup>average</sup><br><sup>3i C </sup>|<sup>uityfr</sup><br><sup>fema</sup><br><sup>hil$ </sup>|<sup>omSQ</sup><br><sup>le/male</sup><br><sup>156in</sup>|
|ratioofannuities fo<br>Argentina.|reach|<sup>cell.F </sup>|<sup>orcom</sup>|<sup>parison,</sup>|<sup>pove</sup>|<sup>ty ne </sup>|<sup>was </sup>|<sup>n </sup>|<sup>e, </sup>||

51
|Table6A:Impactof<br>Fastgrowth:5%retur<br> <br>|publicpillarongende<br>ninaccumulationstage,**4**<br> <br>|rratiosof<sup>mon</sup><br>**%**inannuity<sup>stag</sup><br> <br>|<sup>thlypension</sup><br><sup>e,2%realwag</sup><br>|<sup>s</sup><br><sup>egrowth)</sup>|
|---|---|---|---|---|
|Education*<br>**11**|**12**<br>**1**<br>|**3**<br>**14**<br>|**15**||
||Chile,1994|US$'s|||
||Married<br> <br>|Men<br>|||
|Annuity,RA=65|$2361<br>$3421<br> <br>|$510<br> <br>|$710<br>|$1,636<br>|
|%increase-MPG|**0**<br>**O**|**0**<br>**O**|0|**0**|
||Women<br> <br>||||
|Annuity,RA=60|$76<br>$106|$186|$308<br>|$565<br>|
|Annuity+MPG-av.<br>|91<br>106|186|308|_565_|
|Ann.+MPG-av.if<br>wage-indexed<br>|200<br>200<br> <br>|200<br>|308<br>|_565_<br>|
|%incr.-MiPG-av.<br>|20%<br>0|0|0|0|
|%MPGifRA=65,|||||
|ifFCorif10-year|0<br>0|0|0|**0**|
||Average female/<br> <br>|maleratios<br>|||
|Own-annuity|.32<br>.31<br>|.37<br>|.43<br>|.35<br>|
|Annuity+**MPG**|.39<br>.31<br> <br>|.37<br>|.43<br>|_.35_<br>|
|-ifwage-indexed|.85<br>.58|.39|.43|.35|
||Argentina,**19**|**96US$'s**|||
||**Married**<br> <br>|**men**<br>|||
|Annuity,RA=65|$507<br>$772<br>|$1,156<br>|$1,198<br>|$2,319<br>|
|Annuity**+flat**<br>|707<br>972<br> <br>|1,356<br>|1,398<br>|2,519<br>|
|%increase byflat|40%<br>26%|17%|17%|9%|
||**Women**<br> <br>||||
|Annuity,RA=60|$107<br>$154|$304|$424|$830|
|Annuity+red. flat<br>|247<br>294<br> <br>|444<br>|564<br>|1030<br>|
|%incr.byflat|131%<br>91%|46%|33%|24%|
||**Average female/m**<br> <br>|**ale**ratios<br>|||
|Own-annuity|.21<br>.20|.26<br>|.35<br>|.36<br>|
|Ann.**+**flat(at65)|.15<br>.16<br> <br>|.22<br>|.30<br>|.41<br>|
|Ann.+flat(at70)|.35<br>.30|.33|.40|.41|
||Mexico,1996|US$'s|||
||Married<br> <br> <br>|men<br> <br> <br>|||
|Own-ann.,noSQ|216<br>251<br>|<br>|<br>309<br>|<br> <br> <br>|389|<br>|665<br>|
|Annuityincl.SQ<br>|294<br>329<br>|<br> <br>|<br>387<br>|<br>|463|<br>|736<br>|
|%increasebySQ|36%<br>31%|25%|19%|11%|
||**Women**||||
|Own-ann.,no SQ|651<br>77|103|166<br>|339<br>|
|Annuityincl.SQ|105j<br>117|148|216|396<br>|
|%incr.bySQ|62%<br>52%|44%|30%|17%|
|<br>|Averagefemale/<br> <br> <br>|maleratios<br> <br> <br>|||
|AnnuityifnoSQ[|.30<br>.31<br>||<br>.33<br>|<br>|.43<br>|_.51_<br>|
|AnnuityincLSQ|.36<br>.36|.38|.47|.54|

*See Table 5 for definition of 5 education categories. Public<sup>benefitsbegin at varying</sup> ages. MPG is converted to actuarially equivalent monthly top-up.<sup>See Appendix B.In</sup> Argentina average women in top education group receives<sup>fullflat.</sup>

52
|IFble6]B:EnMpRIeto|fpunbec_pfir_olngeo**m**iie|ir<br>_ranOeoC_<br>nm{o|ltilRypeim$iOI||
|---|---|---|---|---|
|(Slowgrowtli:**3%**ireturi|rmiaccumnu]oatona**stagp**2|%Im<br>Aninummatysitg|e,0%n/re&w|goe|
|<br>rowtln|||||
|Educalflom*<br>a|12<br>1|3<br>I'|Is||
||Maur7AOi<br>|Men|||
|Amuaety,RA=65<br>1|$821<br>1191|1781|2481|571|
|<br>**%**amerease-AFsG|11%<br>0|<br>0l|0°|0|
||Womme|m|||
|Anmuaty,RA=60|$28<br>$40|$70|$115|$212|
|Amnmut+MI?G-av.|91<br>91|91|115|212|
|Amm.+IMG;-v.if<br>WRe-Amdlezed|91<br>91|91|**_115_**|212|
|%Amcr.-IPGN-av.|225%<br>**128%**|30%|0|**0**|
|**%**M1PGff<br>FC|_50%_<br>12%|**O**|**O**|**0**|
||_veiragige<br>enMiRe/M|&lRe<br>aimos|||
|Own-auMety|.341<br>.33|.39|.46|**.37**|
|Aminety++MPG|1.001<br>.76|.51|.46|**.37**|
|**-ff**wage-hndezed|1.00<br>.76|.51|.46|**.37**|
||Airgentdina,'_9_<br>Mairried|_96_<br>__$9$_<br>men_|||
|Annuty,RA=65|$177<br>$269|$402|$417|$807|
|Ainnihty+hat|377<br>469|602|617|1007|
|<br>**%**ficireasebyflXt|113%<br>74%|_50%_|48%|**25%**|
||Woemei|m|||
|ABaimmtys,A=60|$40<br>$58|$114|$159|$311|
|Aimimuty+ired.fiat|**180**<br>198|254|259|511|
|**%**ier.<br>byflat|**350%**<br>241%|123%j|88%|**64%**|
||_AenageifeMgAe/|mERenraode<br>_|||
|Ow__-______ty_|.23<br>.22|**.28**<br>|.38<br>|**.39**<br>|
|Anmm.+flat((t65)|.1I<br>.12|**.19**|.26|.51|
|Amin.+flt(at70)|.48<br>.42|.42|.48|**_.51_**|
||_ez_c_,<br>n99|6UMJ'$'|||
|1__________<br>_|b<br>rMnailesl<br> <br>|miem<br>|||
|Ownm=annm.,noSQ|$79<br>$91|$112||$1411<br>|$241|
|<br>AmiautyOmdcLSQ|114<br>1261|<br> <br>147||174I|273|
|**%**mireasebySQ<br>-|44%<br>38%1|<br>**31%1**|23%||13%|
|I_|_______<br>Wom_e|<br>_|||
|OwEn-aimm., noSQ|24<br>291|<br>38|61|124|
|<br>AnmmnutyALmd.SQ|42<br>461|<br>57|83|150|
|%aimcir.bySQ|**75%**<br>59%1|<br>50%0|36%|**21%**|
|<br>M|ASvenrgeif<br>|nem<br>aRmReirnfts<br> <br>|||
|Aimlhtyi<br>ffimoSQ<br>|<br>|.30<br>.31<br> <br>||<br>.34<br>I|.44||_.51_|
|AmnunAityinmcASQ<br>J|<br>.37<br>.36|.39|.47|.55|

*See Table 5 for definition of 5 education categories. Public benefits begin at varying ages. MPG is converted to actuarially equivalent monthly top-up. See Appendix B. In Argentina average women in top education group receives full flat.

53
|**Table7.PVoflife**<br>**jointannuities andp **<br>r=5%duringaccum|**timebenefits**<br>**ublicpillar(U**<br>ulation,4%dur|**fromown-an**<br>**S$000's)1**<br>ingannuityst<br>**Chile**|**nuitiesand**<br>age,realwage|**lifetimetra**<br> growth=2|**nsfersfrom**<br>%<br>|
|---|---|---|---|---|---|
|Education*|Incomplete<br>primary|Incomplete<br>secondary|Complete<br>secondary|Up to4<br>postsec.|University<br>degree+|
|||**Averageman**<br>||||
|Individual annuity||$53.7|$80.0|l$111.5||$256.9|
|Joint annuity(ifmarr.)|- 4.8|- 7.0|-10.4|-<br>14.5|-<br>33.3|
|||Women||||
|Averagewoman||||||
|<br>Ownannuity|16.9|23.5|41.4|68.3|125.6|
|MPG|2.8|0|0|0|0|
|Jt.annuity(ifmarried)|5.8|8.4|12.5|17.4|40.1|
|<br>%mcr.duetoMPG|17%|0|0|0|0|
|%incr. duetojointann.|31%|36%|30%|25%|32%|
|<br>**FuliCareerwoman**||||||
|Own annuity|27.0|36.5|59.0|81.1|139.5|
|%incr.duetojointann.|19%|23%|21%|21%|29%|
|10**yearwoman**||||||
|Ownannuity|6.9|9.3|12.4|21.4|35.0|
|<br>%incr.duetojointann.|84%|90%|100%|81%|114%|
|||**Argentina**||||
|||Incomplete<br>primary|Incomplete<br>|secondary|**I**Complete<br>**I**secondary||Somepost-<br>secondary|1<br>University<br>|degree|
|||<br>**Averageman**|<br>|||
|Individual annuity|80.3|122.3|183.1|189.7|367.5|
|<br>Flat|26.0|26.0|26.0|26.0|26.0|
|Jointannuity(ifmarr.)|-14.3|-21.9|-32.7|-33.8|-65.7|
|<br>%incr.fromflat(marr.)|39%|26%|17%|17%|9%|
|||**Women**||||
|**Average woman**||||||
|<br>Own-annuity|23.5|33.8|66.6|92.9|181.9|
|Flat|14.2|14.2|14.2|14.2|43.8|
|Jt.annuity(ifmarried)|16.3|24.8|37.1|38.4|74.5|
|%incr.fromflat|61%|42%|21%|15%|24%|
|%incr.fromjointann.|69%|73%|56%|41%|41%|
|**FCwoman**||||||
|Ownannuity|52.7|72.6|118.7|124.1|215.7|
|<br>Flat|30.8|30.8|30.8|30.8|30.8|
|%incr.fromflat|58%|42%|26%|25%|14%|
|%incr. fromjointann.|31%|34%|31%|31%|35%|
|<br>10**yearwoman**||||||
|Ownannuity|,11.8|14.9|13.8|23.2|58.1|
|Flat|14.2|14.2|14.2|14.2|14.2|
|%incr.fromflat|120%|95%|103%|61%|24%|
|%incr.fromjointann.|138%|167%|270%|165%|128%|

54
|||MIez®io|||
|---|---|---|---|---|
|IEduioin|||l0-5<br>6-0<br>9|10-112||3+|
|||__AveMra<br>M<br>nam|||
|Individualannuity-noSQ|34.0|39.7<br>48.6|61.4|105.0|
|SQ|12.4|12.4<br>12.4|11.7|11.1|
|Joint annuity(ifmarried)|-5.7|-6.3<br>-7.4|-8.9|-14.2|
|%incr.from SQ|*41%|135%<br>29%|22%|12%|
|Womeim<br>|||||
|Averagewoma_m|||||
|Own annuityifnoSQ|10.1|11.9<br>15.9|25.7|52.5|
|SQtoown-account<br>|6.2|6.3<br>6.9|7.8|9.0|
|Jointannuity(ifmarr.)<sup>2</sup>|6.4|7.2<br>8.4|10.1|16.1|
|%incr.from SQ|62%|53%<br>44%|30%|17%|
|%incr.fromjointannuity<br>|64%|60%<br>53%|39%|31%|
|IFCwomam''|||||
|OwnannuityifnoSQ|20.9|25.9<br>31.7|46.7|71.8|
|SQ|12.4|12.4<br>12.4|11.7|11.1|
|%incr.fromSQ|59%|48%<br>39%|25%|15%|
|%incr.fromjointannuity|31%|28%<br>27%|22%|22%|
|10yearwomaaim_|||||
|OwnannuityifnoSQ|5.9|6.7<br>7.7|10.2|13.8|
|SQ|4.7|4.8<br>5.1|5.3|5.3|
|%incr.from SQ|80%|72%<br>66%|52%|38%|
|%incr.fromjointannuity|109%|108%<br>109%|99%|117%|

Notes: Expected age of death of 65-year old cohort is used in these calculations. Husbands and wives are assumed to belong to the same educational group. Absolute amount of joint annuity benefit is same for average, full career and 10 year woman but it varies as % of own annuity. Public pillar benefit varies by labor force attachment. In Chile MPG top-up for married woman stops when MPG floor is reached due to joint annuity. Therefore % increment from MPG is less on lifetime than on monthly basis. PV of loss through joint annuity to man is less than PV of joint annuity benefit to woman because PV is measured as of age 65, which woman reaches 3 years later than man. Average man and FC and 10 year women get no MPG. In Mexico part of the subtraction to the husband and increment to the wife from the joint annuity is due to the husband's SQ. SQ has much larger % increment to 10 year woman than to other women, because that woman is assumed to work when she is young; at that point the SQ is larger relative to the wage than it becomes later on due to price indexation of SQ and rising ageearnings profiles. Same factor leads % SQ to be slightly lower for full career woman.

55
Table 8: The impact of joint annuities and unisex tables'

|(r=5%duringaccumul|ations,4%duringannuit|ystage,g=2%)|||
|---|---|---|---|---|
|**Education**<br>**11**|**2**<br>|**3**<br>**14**|**15**||
|<br> <br>|<br> <br>**Chile**<br>**Males,retirin**<br> <br>|<br> <br>at65<br>|||
|Individual-gen.spec.|$271<br>$393|$586|$816|$1880|
|Individual-unisex|252<br>365|544|758|1746|
|Joint-genderspec. <sup>2</sup>|236<br>342|510|710|1,63f|
|Joint-unisex|236<br>342|509|7091|1,634|
||Females,retirin<br> <br>|gat60<br>||l<br>|
|Individual-gen.spec.<sup>2</sup>|$76<br>$106|$186|$308|$565|
|Individual-unisex|80<br>111|196|324|595|
|Widow'sbenefit<br>|142<br>205<br> <br>|306<br>|426<br>|982<br>|
|Widow+own|218<br>311|492|734|1547|
|_-%_ofhusband+wife|70%<br>70%|71%|72%|70%|
||**Argentin**<br>**Males,retirin**<br> <br>|**a**<br>at65<br>|||
|Individual-gen.spec.|617<br>940|1407|1458|2824|
|Individual-unisex<br>|562<br>856|1282|1328|2572|
|Joint--genderspec.<sup>2</sup>|507<br>772|1156|1198|2319|
|Joint-unisex|518<br>789|1181|12251|2371|
||**Females,retiri**|**gat60**|||
|Individual-gen.spec.<sup>2</sup>|107<br>154|304|424|830|
|Individual-unisex|115<br>165|326|454|888|
|Widow'sbenefit|355<br>540|809|838|1623|
|Widow+own|462<br>694|1113|1262|2453|
|_-%_ofhusband+wife|75%<br>75%|76%|78%|78%|
||**Mexico**||||
||**Males,retirins**<br> <br>|at65<br>|||
|Individual-gen.spec.|$335<br>$375|$440|$528|$838|
|Individual-unisex|316<br>354|416|498|791|
|Joint-genderspec.<sup>2</sup>|294<br>329|387|463|736|
|Joint-unisex|296<br>331|389|466|740|
|<br>|<br> <br>Females,retirin|<br>gat65|||
|Individual-gen.spec. <sup>2</sup>|_105_<br>117|148|216|398|
|Individual-unisex|111<br>124|156|228|419|
|Widow'sbenefit|177<br>198|232|278|441|
|Widow+own|282<br>315|380|494|839|
|-%ofhusband+wife|71%<br>71%|71%|73%|74%|

Notes:

1. The MPG and flat are not included in this table. SQ is included since it is part of annuity. Life expectancy is based on national averages; full mortality tables are not used. Joint annuity assumes 60% to survivor. Given deterministic assumptions, woman would never purchase joint annuity.For education categories see Table 1A.

2. Corresponds to own-pensions in Tables 5 and 6 for Chile and Argentina, own+SQ for Mexico.

56
|T1ablle9:IlatiooofEr1peced?V'<sup>of0</sup><br>(relaRnveto_irano_fforMmnrired1 menmfn<br>(r=5%duringaccumulation,4%dur<br> <br>|Post-Refoirrire<sup>form</sup><br> top<sup>emengadomnmgrroup)</sup><br>ing annuitystage,<sup>realwa</sup><br> <br> <br>|<sup>Liffetme</sup><br><sup>gegrowth= </sup><br>|eemes<br> <sup>2%)</sup><br>||
|---|---|---|---|---|
|E1ulcaton*<br>i|11<br>2<br>||3|4||
||Avegir<br>Mnm||||
|Married Man|1.31<br>_.|i.2|0.9j<br>|1.0<br>|
|Single Man|i.5<br>j1.<br>40||1.1|1.4|
||Wom||_em||
|Averagemarried|1.5<br>1.|1.0<br>|0.9<br>|1.0<br>|
|Fullcareer married|___<br>__|1.5|1.6<br>|1.3<br>|
|Full career single|1.5<br>1.5|1.2|1.30|1.0|
|Fenyearmarmed|1i.2<br>1.1|1.1|1.0|1.1|
|Omem<br>+wormenmAveragehousehol|1.4<br>1.2|1.1|0.9|1.0|
||AU-emAitaml||||
||Aveimee1Xam||||
|MarriedMan<br>|_1.5__<br>1.3<br>|0.9|_1.0||
|SingleMan<br>[_|<br>_<br>_1.5_|1.|1.3|1.2|
||Womeua||||
|Averagemarried<br>___|<br>2.0|1.2|1.2<br>|1.1<br>|
|Full careermarried|2.1<br>2.0|1.6|1.4|1.3|
|Fullcareersingle|1.8<br>1.7|1.|1.2|1.0<br>|
|Tenyearmarried|2.5<br>2.2|1.|1.4|1.5|
|Menn+womneonAveragehousehold|1.8<br>1.6|1.0|1.1|1.1|
||Mestii¢t||||
||AveiraeMm<br> <br>||||
|MarriedMan|1<br>_1.5_|1.|0.91|1.a|
|SingleMan<br>_|1<br>1.7||1.4|1.0]|1.1|
||Womeim||||
|Averagemarried|1.8<br>1.6|1.|1.1|1.0|
|Fullcareermarried|2.1<br>1.9|_1.5_|1.1|0.9|
|Fullcareersingle|2.4<br>2.4|1.8|1.2|1.0|
|Tenyearmarried|1.6<br>_1.5_|1.|1.|1.2|
|Mem+womeEnAveragehousehold|1.8<br>1.6|1.3|1.0|1.C|

Notes: Includes lifetime benefits from own-annuity,<sup>public pillarand jointannuity(for</sup> married). Each cell i shows (PVnew/PVold)i/(PVnew/PVold)k<sup>where(PVnew/PVold)=</sup> ratio of present value of lifetime benefits<sup>in newvs.oldsystemsforgroupi.Thisis</sup> nornalized by the ratio for reference group<sup>k,wherek=-marriedmenin highest</sup> educational category. If the number in a cell>l,<sup>thismeansitgainedmorethantop</sup> married men. For educational categories see<sup>TableIA. Bold indicatesbiggest gainers.</sup> 57
Table 10: F/M ratios of expected PV of lifetime benefits in new vs. old systems

|Education|1|2<br>3|4|5|
|---|---|---|---|---|
|||Chile|||
|||Oldsystem|||
|Av.,ownpension|.66|.58<br>.91|_.95_|_.74_|
|**Av.,**own+widow|.69|.62<br>.91|.95|.75|
|FC,ownpension|.81|.71<br>.93|.68|.69|
|FC,own+widow|.81|.71<br>.93|.68|.69|
|10yr,own+wid.|.44|.40<br>.37|.38|.32|
|||Newsystem|||
|**Ay,**PVownann.|.47|.44<br>.52|.61|.49|
|**Av.,**own+MPG|_.55_|.44<br>.52|.61|.49|
|Av,own+MPG+jt.|.79|.68<br>_.77_|.88|.74|
|FC,ownannuity|.73|.68<br>.74|.73|.54|
|FC,own+joint|1.02|.96<br>1.03|1.01|.80|
|10yr,own+joint|.39|.38<br>.36|.40|.34|
|||Argentina|||
|||Oldsystem|||
|Av.,ownpension|.16|.13<br>.4|.67|.75|
|**Av.,**own+widow|.29|.26<br>.51|.75|.81|
|FC,ownpension|.74|.60<br>.57|.81|.74|
|FC,own+widow|.76|.65<br>.63|.81|.76|
|10**yr,**own+wid.|.29|.26<br>.26|.35|.29|
|||Newsystem|||
|**Av,**PVownann.|.3|.28<br>.37|.44|_.53_|
|**Av.,**own+**flat**|.35|.32<br>.39|.50|.57|
|**Av,**own+flat+joint|.59|.57<br>.67|.80|.92|
|FC,own+**flat**|.79|.70<br>.72|.72|.63|
|FC,own+flat+joint|1.09|1.01<br>1.06|1.06|.98|
|10yr, ann.+joint|.46|.43<br>.37|.42|.40|
|||Mexico|||
|||Oldsystem|||
|Av.,ownpension|.35|.29<br>.26|.3|.53|
|Av.,own+widow|.58|.53<br>_.50_|.54|.76|
|FC,ownpension|.63|.54<br>.57|.66|.82|
|FC,own+widow|.86|.78<br>.80|.90|1.06|
|10yr,own+wid.|.47|.43<br>.36|.30|.28|
|||Newsystem|||
|**Av,**own-noSQ|.30|.30<br>.33|.42|_.5_|
|**Av.,**own**incl.**SQ|.35|.35<br>.37|.46|.53|
|**Av,**own+SQ+joint|.56|.56<br>.58|.68|.76|
|FC,own**incl.**SQ|.72|.74<br>.72|.80|.71|
|FC,own+flat+joint|.97|1.00<br>.98|1.07|.97|
|10yr,ann.+joint|.42|.41<br>.40|.40|.34|

Denominator is married man for rows with joint annuity; single man if no joint annuity.

58
ApPnD1d1z A: stirinfuom of SanMple by scbooRmg<sup>gimdeRectedgages (o%</sup> _0rows)_<sup>_of_</sup>

||C1ERLE-URB<br>|ANAREAS<br>|<br>||
|---|---|---|---|---|
|Age|lffionMpRege<br>|omiep1eqe<br> <br>||Seolmdury<br>||<br>yearspos<br>|l|I+yn$po$i-<br>I|
||jpindmgau,y<br>secoimd1ary<br> <br>|1<br>|I59onily<br>||
|31**-** 35|12.85<br>28.04<br>|31.94<br>|14.76<br>|12.41<br>|
|46**-** 50<br>|34.64<br>16.23<br> <br>|23.43<br>|13.63<br>|12.07<br>|
|61- 65|56.92<br>12.76|17.86<br>|4.39<br>|8.07<br>|
|Total|126.33<br>24.53|_26.45_|114.07|8.62|
|IYEMA LIES__|_<br>_<br>_<br>_<br>_<br>_<br>_<br>_<br>_<br>|__<br>_<br>_<br>_<br> <br>|_<br>_<br>_<br>_<br>_<br><br>|_<br>|
|31**-** 35|9.01<br>22.21<br> <br>|33.21<br>|23.13<br>|12.43<br>|
|46**-** 50|35.45<br>16.33|20.1<br>|17.67<br>|10.45<br>|
|61**-** 65|64.76<br>8.49<br>|13.69<br>|7.68<br>|5.38<br>|
|**Total**|24.58<br>19.09|26.61|20.88|8.84|
||ARGENTENA-FUL<br> <br>|LLAIOR<sup>FOR</sup>|<sup>CE</sup><br>||
||imeonimpRete<br>]EcomIpRete||Sommepost.<br>|UVeIrsy<br>|
|Age<br>MALLES|pirnAmiry<br>secoad1%mry|Secondg1ry|secoindIairy<br>|degree<br>|
|31-35|7.18<br>49.70<br>|19.78<br>|14.65<br>|8.7<br>|
|46-50|15.1<br>51.60|14.24<br>|10.01<br>|9.05<br>|
|61-65|24.28<br>52.01<br>|12.40<br>|5.27<br>|6.04<br>|
|**Total**|11.65<br>52.95|17.00|12.37|6.03|
|IFEMALES|||||
|31-35|5.93<br>36.21<br>|19.04<br>|28.48<br>|10.34<br>|
|46-50|13.88<br>**42.80**<br>|17.51<br>|15.07<br>|10.74<br>|
|61-65|34.04<br>46.78<br>|8.30<br>|8.78<br>|2.11<br>|
|**Total**|9.88<br>40.65|18.61|23.58|7.29|
||_<br>_MEMlCO-MOIE-U1RIBAN<br>|AREA<br>|S<br> <br>||
|Age|10§yearrs<br>1syeairs|yeau$|¢<br>102Yeus||
|MALES|_<br>_<br>_<br>_<br>_<br> <br>|_<br>_<br>_<br>_<br>|_<br>_<br>_<br>_<br>_<br>_<br>|_<br>_<br>_<br>|
|31**-** 35|8.49<br>21.85|20.23<br>|23.33<br>|26.10<br>|
|46**-** 50|20.66<br>29.55<br>|11.61<br>|13.43<br>|24.75<br>|
|61**-** 65|43.48<br>32.97|5.71<br>|6.70<br>|11.14<br>|
|Total<br>|13.75<br>25.68|18.78|19.69|22.09|
|FEMALLES|||||
|31**-** 35|9.60<br>20.22|12.61<br>|28.79<br>|28.78<br>|
|46**-** 50|22.45<br>32.24<br> <br>|8.42<br>|23.35<br> <br>|13.54<br>|
|61**-** 65|57.50<br>17.86<br>|**3.13**(a)<br>|7.31<br>(a)<br>*|14.20(a)<br>|
|Total<br>(a)Estimatedo|14.35<br>22.47<br>n cellsample<sup>size< 30.</sup>|13.79|28.42|20.97|

59
# **Appendix B on data sources and methodology**

> _Tables 3 and 4._ The Chile estimates are based on CASEN 94, a nationally representative survey that provides information on current labor force participation, working status, affiliation to social security and contributory status. The estimates used are based on the urban sampleapproximately 100,000 individuals age 16 or older. The work patterns reported are those of affiliates (workers who have contributed at some point) in urban areas. The self-employed are not required to contribute. Our data indicate that 73% of all male workers and 55% of female workers

> affiliate (most of the others are self-employed) and 90% of male affiliates (91% of women

> affiliates) who are employed contribute to social security. Thus, in Chile our estimates are close

> to the behavior of the average affiliate but do not apply to women who never worked in the

> formal labor market. Work experience is estimated based on current employment of affiliates.

> Wages reflect pay for full time work (most work is full time, or 35 hours per week, in Chile). For

> some analyses data on the distribution of wages within each cell were used to estimate dispersion of pension accumulations for that cell.

The Argentine data are based on the micro data set of the Encuesta Nacional de Gastos de los Hogares (ENGH) for 1996-97, a nationally representative household survey. The sample contains 103,858 individuals, of whom 69,895 were 16 years or older. All regions covered are considered urban. Our data do not allow us to distinguish between affiliates and non-affiliates or between full timers and part timers. In Argentina all workers, including the self-employed, are supposed to affiliate and contribute. From other sources, we know that 90% of private sector workers and 50% of public sector workers were affiliated in the mid 1990's but the over-all contribution rate is only 50% of employment in urban areas (compared with 68% in Chile). Thus some work years may be non-contributing years. Work experience is estimated based on current employment status of urban population, including both full time and part time workers. Wages reflect pay for full time and part time work, hence understate the true full time wage rate. Because we cannot distinguish between non-affiliates and affiliates, who have a higher labor force participation rate, we probably understate the labor force attachment of affiliates. However, we probably overstate contributions of affiliate when working, because of the 50% evasion rate.

The Mexican data come from the 1997 Mexican National Employment Survey (ENE-97) completed by _INEGI (Instituto Nacional de Estadistica, Geografla e Informnitica),_ the Mexican Statistical Bureau. The sample contains information on 119,405 individuals aged 12 or older. We use the sub-sample corresponding to more-urban areas (communities of 100,000 people or more), which is about 78% of the sample. This survey contained the standard employment survey questions, plus a module with employment history and job training questions. The ENE97 does not allow for the identification of social security affiliates (about 42% of the economically active population) and/or the contributions made to retirement plans. Work experience is estimated based on current employment (both part time and full time) of more-urban population in relevant age-education cells. Wages reflect pay for full time and part time work in each cell. For some analyses we used the observed coefficient of variation on earnings for each cell as an estimate of the distribution of years worked and resulting annuity within that cell.

Using these cross-sectional statistical data, we divided men and women into gender-ageeducation-mantal status cells. A typical cell, for example, might consist of all married women with high school degree age 30-35. For each cell we obtained the average employment rates and wage rates for the current population. Data on marital state enabled us to identify the age, M, at which the probability of being married > 50%. In constructing our synthetic men and women, we used the employment probability and wage rate of the single individual up to age M, and the married individual after age M. The labor force participation rate of women typically declined sharply when they got married. In some (high education older age) cells the number of single women is very small so we could not profile women who remained single throughout life.

_Table 5._ We assumed that for each educational level, an average man or woman who enters the labor force today proceeds through life with the age-specific employment probabilities and 60
wage rates that were derived from the cross-sectional<sup>data.Forsimulationswherepositive</sup> economy-wide wage growth was assumed, we<sup>multipliedthe age-specificwagerateby the</sup> projected growth factor. For all three countries our<sup>simulationsuse three differentlabor</sup> attachment pattems for women: "Full career women"<sup>arethosewhohavesamelaborforce</sup> participation rates and retire at same age (65) as men.<sup>"10-year women" are womenwhowork</sup> only 10 years, early in their adult lives, before children<sup>are born."Averagewomen"have average</sup> work and wage for each education cell. "Average<sup>womenif RA=65"arewomenwho starttheir</sup> annuity at age 65 but have same work experience as<sup>average women.</sup> Contributions and fund accumulations are based on<sup>estimatedannualearnings andwork</sup> experience for each age-education-gender cell. In<sup>baseline,realrateofwagegrowthis2%</sup> annually and rate of return is 5% during accumulation<sup>stage,4% duringpayoutstage. Allwork</sup> years are treated as contributing years although<sup>this probablyoverstatesaccumulations.</sup> Annuitization upon retirement is assumed. Gender-specific<sup>mortalitytables areused.</sup> Joint annuity with 60% to survivor (70% in Argentina)<sup>isrequiredformarried men whoannuitize.</sup> Wives are assumed to be 3 years younger<sup>than andhave3-4yearlongevitygreater thantheir</sup> husbands. In Chile males retire at age 65, survive<sup>for15.5 yearsand purchasea joint annuitythat</sup> covers their wives for an additional 6.4 years. Females<sup>retireat age 60, survivefor 22.8years and</sup> purchase individual annuities. In Argentina<sup>menat age65survive14.5years and joint annuity</sup> covers their wives for another 7 years. Women<sup>survivefor22.5yearsat age60.In Mexico both</sup> men and women retire at 65. Male and<sup>femalelife expectanciesat65are15.8and18.5,</sup> respectively, Women collect joint annuity for 5.7<sup>years.Pesos are convertedinto $'s according to</sup> 1994 rates for Chile (413/1), 1996 for Argentina<sup>(1/1) 1997forMexico(8/1).InArgentina,</sup> current rate of exchange is only 25-30% as much<sup>as1996rate, sowould yieldmuchlower</sup> annuities.

_Table 6:_ Own-annuities are from Table 2. Chile's<sup>MPG was$91in1994, startingat age65</sup> for men, 60 for women. Twenty years of contributions<sup>arerequiredfor eligibility.Currentlyit is</sup> formally price-indexed, but ad hoc adjustments<sup>havebeen madethat keep it roughly on par with</sup> wage growth. If it became wage-indexed<sup>it would rise to $200in 40 years.In Table3the MPGis</sup> converted to an actuarially equivalent monthly top-up,<sup>althoughin realityretirees mustuseup</sup> their own accumulation by withdrawing an amount<sup>equaltothe MPG monthly, andthenget the</sup> full $91 from the state after they run out of money.<sup>The flat benefit in Argentinais$200,starting</sup> at age 65 for men and 60 for women. The reduced<sup>flatis $140,startingat age70.These benefits</sup> are price-indexed. In Argentina 30 years of contributions<sup>are required for the full flat and 10 years</sup> for the reduced flat. The full filat is received by the<sup>averagemaleandfullcareer womanin every</sup> educational category. The 10-year woman and<sup>average woman get only the reducedflat, exceptat</sup> the top educational level, where she meets the years of<sup>service requirement.Mexico'sSQisa</sup> uniform payment by the government into each<sup>worker'saccount per day worked.It is 5.5%of the</sup> minimum wage or 2.2% of the average wage,<sup>indexedto prices.All workersareeligible. Payouts</sup> start at age 65.

61
Appendix C. Estimated fund accumulations by decile, gender and schooling,

> Chile* (estimated accumulations given for deciles that do not meet MPG target)

|Baseline(r|_=5%_duringaccum<br> <br>|ulationstage, <br> <br>|4%duringannu<br>|itization,g=2|%)|
|---|---|---|---|---|---|
||Incomplete<br>In<br> <br>|complete<br>|<br> <br>|Secondary<br>[<br> <br>|upto4years<br>|imorethan4<br>|
|||Primary<br>|Se|condary<br>**I**|<br>|PostSec||yearspostsec|
||<br> <br>Men**at65:MPG**<br>Wom<br>|<br> **Target-$5,43**<br>en**at60:MPG**<br>|<br>**2,000-**Alldecile<br> **Target= $6,60**<br>|<br>smet MPGtarg<br>**5,000**|<br>et|
|1<sup>stdecile</sup><br>|$2,640,371|$3,583,689|$5,581,615|||
|**2 **<sup>**d**decile</sup>|$4,187,835|$5,351,228||||
|**3d**decile<br>|$5,083,753<br>|$6,298,100||||
|**4th**decile<br>|$5,793,417||||l|
|**5**<sup>**th**decile</sup>|$6,267,6081|||||
||**Wom**<br> <br>|**enat65:MPG**<br>|**Target= $5,92**|**6,000**||
|1stdecile<br>|**1**<br>$3,451,569<br>|$4,580,4621||||
|2udecile|$5,467,4251|||||
|Slowgrowth|scenario(r=3%, <br>|g=0)<br>||||
|t__________<br>|<br>Men<br>|at65:MPG <br>|Target=$6,468<br>|000||
|**l1t**decile<br>"|$3,582,019<br> <br>|$4,550,527|$5,579,140|||
|2decile_|<br>$4,788,407|$5,501,859||||
|**3**<br>decile|$5,309,888|$6,312,167||||
|**4**<sup>**t**decile</sup>|$5,952,367_|||||
||Wome<br>|n**at60:MPG**<br>|**Target= $8,018**<br>|**,000**<br>||
|**1**stdecile|$1,212,817|$1,647,376|$2,564,196|$3,927,087|$7,669,210|
|2decile<br>|$1,923,563<br>|$2,458,496<br>|$3,357,370|$5,250,964||
|**3**<sup>**d**decile</sup>|$2,334,777|$2,893,717|$3,925,008|$6,500,917||
|**4**<sup>**th**decile</sup><br>|$2,661,036<br>|$3,204,034<br>|$4,505,003|$7,588,586||
|**5 **<sup>**?**decile</sup><br>|$2,878,844|$3,543,527|$5,390,867|||
|**6?**decile|$3,196,751|$4,030,192|$6,408,994|||
|**7 **<sup>**th**decile</sup><br>|$3,665,575<br>|$4,808,575|$7,402,749|||
|**8**<sup>**t**decile</sup><br>|$4,299,426<br>|$5,371,6441||||
|**9**<br>**decile**|$5,076,339|$7,165,5661||||
||Wome<br>|n**at65:MPG **<br>|**Target= $ 7,00**<br>|**0,000**<br>||
|1<sup>stdecile</sup><br>|$1,439,545<br>|$1,912,497<br>|$3,015,529|$4,655,162||
|2ddecile|$2,280,273|$2,851,713|$3,936,752|$6,189,899||
|**3**<sup>**d**decile</sup>|$2,773,762|$3,356,664|$4,601,668|||
|**4t**decile|$3,168,764|$3,718,733|$5,291,210|||
|**5**<sup>**t**decile</sup><br>|$3,421,263|$4,112,709|$6,318,169|||
|6tdecile|$3,803,227|$4,679,214||||
|**7**<sup>**th**decile</sup><br>|$4,356,189<br>|$5,581,573_||||
|**8**<sup>**th**decile</sup>|$5,118,443|$6,240,895||||
|**1tb**decile|$6,052,656|||||

* MPG target is accumulation that yields annuity higher than MPG and therefore makes top-up unnecessary. Accumulation dispersion estimates are based on actual wage dispersion and average labor force participation rates.

62
Appemm1 DO: Ipeirsoim Im Years of Ezpeeimee imd EgMIfiuty<sup>ffoirMHGin Mezco</sup> (% under MPG eligibility requirement,<sup>by schoolinglevel</sup><sup>**)1**</sup>

|BaseRlie seema<br>|roureaRlnmte<br>|restrete<sup>=</sup> <br>|<sup>_§%,_</sup><br>irealwgE<br>|growth=2|%<br>113|
|---|---|---|---|---|---|
|Yesirsofseiool<br>|0-§|6-0|_0=12||+|
|Men_<br>||||||
|Memnexjperience<br>|45<br>|44.3<br>|44.6<br>|43.9<br>|42.8<br>|
|**%**uideir0years|0<br>|0<br>|0<br>|0<br>|0<br>|
|%nnmder20 yearo<br>|0<br>|0<br>|0<br>|0<br>|.1<br>|
|%under2§yeairs<br>|0<br>|.1<br>|0<br>|.2<br>|1.<br>|
|**%**eUlgMbleforM]?¢G|100<br>|99.9<br>|100<br>|99.8<br>|99<br>|
|**%**owM-aMImety<br><M<br>MMiinun<br>peMsaon <sup>2</sup>|0|0|0|0|0|
|WonDen||||||
|Meeanezjerneimee|20.9<br>|19.9<br>|21.9<br>|24.4<br>|31.7<br>|
|**_%_**unmderi10years<br>|25.5<br>|28.5<br>|24.5<br>|16.8<br>|5.9<br>|
|**_%_**imimder20years|47.8<br>|50.2<br>|45.6<br>|38.5<br>|19.9<br>|
|**%**unmder25vyears|59.7<br>|61.5<br>|57.1<br>|51.7<br>|31.4<br>|
|%eflgEfleforMIP¢<br>|40.3<br>|38.5<br>|42.9<br>|48.3<br>|68.6<br>|
|**%**owIMn-annSuity<br><miRnnmnmpensiomn<sup>2</sup>|47|43|34|19|4|

Notes:

1. Dispersion is calculated<sup>using coefficientsof variationof theaccumulatedyearsof</sup> experience for women and men,<sup>ages 61-65,from ENE97, more urbanareas.</sup>

2. MPG = US$99 in 1997 US$'s.<sup>Own-annuity is estimated using assumptionsgivenin</sup> Table **_5,_** for given years of<sup>experience.Probably thereis a positive correlation between</sup> years worked and size of own-annuity,<sup>sothosewhoseown-annuityarelessthanthe</sup> minimum pension are likely<sup>tobe includedamong thosewhoworked lessthan 25years</sup> and are therefore ineligible for<sup>the MPG top-up.</sup> 63
# **Appendix** E: **Old system formula in Mexico**

> NOTE: OLD SYSTEM

The annual retirement pension is based on: a) base amount given by a percentage of the income earned during the last 5 years of contribution,

> b) an increase for each additional year contributed, and

c) the number of years of contribution in excess of the minimum 10 year requirement.

> The value of the annual pension is calculated according to the following expression:

## S * [(CB) + (Y)* (Al) ]

> S= base salary used for the last 5 years of contribution

> Base%= percentage of base salary in base amount

> Y= additional years contributed beyond the 10 year requirement

> Al= annual increment as % of S, for each additional year contributed beyond 10 years.

> In addition, the IMSS provides retirees with a yearly bonus equivalent to

> one month of the pension payment they were receiving.

Thus the total annual amount received would be

> 13/12 of the value obtained by the expression given above.

> Base% and Al are rates determined in a table (IMSS, 1993), which vary according to the amount S expressed in number of minimum wages. The Base% is inversely related to S,

> and ranges from 80% to 13%. The annual increment,

Al, is directly related to S, and ranges from 0.563% to 2.45%.

> Below we provide an example of the calculation for levels S of 1 and 6 minimum wages, assuming a total of 30 years of contribution to IMSS.

|S<br>|Base%|Al|Y|Estimated annualpension|
|---|---|---|---|---|
|1minimumwage<br>|80%|0.56%|20|13/12* S*(96.9%)<br>=105%|
|6minimumwages|13%|2.45%|20|13/12*S*(86.5%)<br>=93.7%|

Replacement rates of base salary range between 94% and 105% for high and low wage worker, respectively, who has worked for 40 years. For 10 years of work these replacement rates would be 14% and 87%, respectively.

64
]Fiinire 1: e Male imirnmues<sup>fnromn1D)C aniremore tDinm</sup> 'fi 1 Re emone M UnUMfes (based on private<sup>contributions;does not includeany public benefits)</sup> <!-- Start of picture text --> L, onthly annuitiez from DC pillar<br><!-- End of picture text --> <!-- Start of picture text --> 2500<br>2000-<br>1500 - -C-Argentina-men<br>-- C-- Chile-men<br>P9 . . = - Maedco-men<br>-M Argantina-women<br>1000 Chile-women<br>1000 -0--- Maxico-women<br>5000<br>0<br>1 2 3 4 5<br>educatiIon (incomplete prtmp-y to 6c0 pozt-zecondmry)<br><!-- End of picture text -->

**_65_**
Figure 2: Low earners, especially women, get biggest % increment from public pillar

# **%** increment to own-annuity from public pillar-4ifetime benefits

<!-- Start of picture text -->
-4-dcoav.Wvun<br>Arg-Nrntru-av  vxmn<br>40  Mex~~~~~~~~~~~~~~~~~~~~ticD-av mnn<br>I  ~~~~~~~~~~~~~~~~~~~~~~-4----ArgeMtir-av mnn<br>30  .s,.  4  Che-av  ia3<br>lb  0~~~~~~~~~~~~~~~~~~~-  - Ctile-ay  n-un<br>0<br>1  2  3  4  5<br>education (Incomplete  primiary to post-secondary+)<br>60~~~~~~~~~~~~~~~6<br><!-- End of picture text -->

66
6 _ _h u 6z "0.-';> {0l 4 !" '4.t'', p= .2. s v ''sn 0A C _'ta_ ,~~~~~~~~~~~~~~~~~~~~~ i, h0 I'L **4?** _~~~~~~~~~~~~~~~~~~~~~4 " E B R 8 i w 8 9 o o pZ ,O U -s '
# Figure 4: PV of post-reform/pre-reform lifetime benefits, normalized*

<!-- Start of picture text --> Low earng nunled wommn g largest liMrm gain frnm dfmn<br><!-- End of picture text --> <!-- Start of picture text --> as<br>N ~ ~<br>2 3 -0-A4e5br-avYam<br>0f; .1* Base Aguoeaywac rrjia<br>normalized posnnsi t rf o e t c<br><!-- End of picture text -->

*Based onjointa **duiatyion mencandpt pincudeso jo~eoint** nutyrcivdbwmn

normalized by setting new/old ratio for man in top education category =1, separately for each country.

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Figure 5: Gender ratios improve due to the<sup>reform</sup> F/M ratlos of PV of lifetime benefits,<sup>Mexico</sup> <!-- Start of picture text --> t2 _ - L, . . - _ =<br>08 -o-- New -DC+SQ+joint annuity (FC)<br>-a-o-Old-ow n+w idow (FC)<br>- ~~~~~~~~~~~~~New -DC+SQ+joInt annuity (av.)<br>06 ~~~~~~~~~~~~~-#4- Oil-ow n+w idow (av)<br>j -r' -- -+--- New-DC+SQ+joint annuity (10 yr)<br>S - - - ._ 's -e COd-own+widow (10 yr)<br>0 4~~~~~4<br>02 4<br>0<br>*ucn 2d1 - ,proprimay to postsec'ndcry) -<br><!-- End of picture text -->

**69**