Academic journal article Social Security Bulletin

Bolivia Plans to Privatize Pension Program

Academic journal article Social Security Bulletin

Bolivia Plans to Privatize Pension Program

Article excerpt

The Bolivian Government has proposed legislation that would borrow from the Chilean experience with the creation of an individually capitalized old-age, survivors, and disability pension plan. The social security pension reform proposal would develop along with partial (up to 50 percent) privatization of major government-owned enterprises. The state industries would be open to both national and international investors; the other 50-percent ownership of the enterprises would be transferred to future pension account owners to help accelerate the capitalization process.

The current Bolivian social security system, dating from 1956, suffers from financial, structural, and administrative difficulties. In 1992, the system covered only about 12 percent of the country's work force of about 2.6 million persons. Confidence in the social security system, according to a U.S. Embassy report released last spring, is lacking even among staunch supporters such as the Bolivian Federation of Labor. A major structural problem has been the underreporting of the workers' total earnings until they approach retirement age--50 for women and 55 for men. The basic old-age benefit is calculated on earnings between 6 and 24 months before retirement. Another structural, as well as financial, problem is that the current ratio of active workers to beneficiaries has declined to 2.5:1 The ratio of active workers to beneficiaries declined to 2.2:1 in Chile at the time of its social security reform in 1981.

The current pay-as-you-go social security system would be totally replaced by a program of individual pension accounts covering all Bolivian workers engaged in economic activities. Persons with acquired rights and benefits under the current system would have these rights preserved and financed through general revenues. One of the more difficult administrative procedures in moving from a traditional social security system to one of individual capitalization is how to bridge the two systems. …

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