The Cost of Privatised Pension Systems

 Financial corporations started administering the pensions of Argentinians in 1993 and of Bolivians in 1996. Argentina and Bolivia are among only 30 countries (of the world’s 192) that experimented with privatization of their pension systems. Today, the majority of these countries are reversing the privatization of pensions.  Private insurance corporations are suing Argentina and Bolivia for loss of potential profits as a result of the reversal of privatization of their pension programs. If Argentina and Bolivia lose the disputes, it means that impoverished citizens and elderly pensioners will have to compensate wealthy financial corporations. These cases affect the lives of millions of Argentinians and Bolivians.

Pension policy is not about securing profits for private insurance corporations. Pension systems exist to provide income security in old age—to ensure that older persons retire with adequate pensions.

 Pension privatization failed because of  inadequacies in the private pension system:

• Coverage rates decreased or stagnated under private pension systems.¹
• Pension benefits deteriorated, making private pensions very unpopular.²
• Old-age poverty worsened due to low pensions.
• Gender and income inequality increased.³
• Private systems were expensive: The high transition costs of privatization created large fiscal pressures.⁴
• Private pension administrators incurred high administrative costs and extracted excessive profits through these extraordinary administrative fees.⁵
• Financial and demographic risks were transferred to individuals; pensioners had to suffer the loss of benefits when these risks occurred, such as during the global financial crisis.
• Social dialogue severely deteriorated.

¹ In Argentina, coverage rates for men fell from 46% (in 1993, prior to the reform) to 35% (in 2002) and for women to only 31%; in Bolivia, they stagnated.
² In Bolivia, after privatization, the replacement rate fell to 20% of the average salary during working life; this is far below ILO international standards.
³ In Bolivia, the proportion of elderly women receiving a contributory pension fell from 23.7% in 1995 to 12.8% in 2007 as a result of privatization.
⁴ In Argentina, initial estimations put the cost at 0.2% of GDP; later the World Bank increased the cost estimate to 3.6% of GDP, 18 times the original estimate; in Bolivia, the actual transition costs of the reform were 2.5 times the initial projections.
⁵ In Argentina, administration costs jumped from 6.6% of contributions in 1990 before privatization to 50.8% in 2002; in Bolivia, from 8.6% in 1992 to 18.1% in 2002 after privatization.

The corporations are using the World Bank’s business-friendly International Centre for Settlement of Investment Disputes (ICSID)
Nobel Economist and 100 Experts Condemn Corporate Action against Argentina and Bolivia after Rollback of Failed Pension Privatization | Inter Press Service (ipsnews.net)