Argentina Approves a Privatization Option for Social Security

Article excerpt

On September 22, 1993, the Argentine Senate approved a system of retirement options bad on the concept of individual capitalization. The legislation had been more than 18 months in parliamentary debate. (The original legislative proposal appeared in "International Updates," Social Security Bulletin, Vol. 55, No. 3 (Fall 1992), page 80.) The model for this fundamental change in the traditional Argentine social security program is the 13-year-old Chilean system of financing.

The legislation creating an Argentine individual capitalization system allows workers to see the existing pay-as-you-go social security program as the program of social protection, or to use the existing structure as a basic guarantee along with the new individual investment accounts to finance retirement (including disability and survivors' coverage). The option is open to all workers, but very significantly favors the younger worker with respect to future income replacement rates (see chart). (Chart omitted)

The new retirement program contains four components--two of which are open to the worker's choice. There will be a basic, universal pension (similar to the old-age benefit in the United Kingdom). This benefit will be payable at age 65 for men and age 60 for women and will be based on 30 years of contributions. The benefit amount will be based on 2.5 times what will be known as the AMPO. The AMPO is originally set at US$55--a figure designed to represent an average of the mandatory social security contributions paid by either workers and their employers or employers only, depending; on the option of the worker to adhere to the traditional social security system or to join the new program.

Persons who have more than 30 years of contributions will receive an additional 1-percent increment, up to a maximum of 15 percent. Those persons who stay with the old system are also eligible for a further payment based on previous attachment to the program. This payment is based on 1.5 percent of average earnings in the 10 years immediately preceding the benefit. The increment is capped at 35 years of coverage and may not exceed an amount equal to one AMPO per year of coverage.

The third benefit feature is an optional one that is designed to increase benefits for those who remain in the old system (primarily older workers). It allows for future contributions to the general system, amounting to 0.85 percent of average earnings in the final 10 years--again not to exceed 1 AMPO per year of contributions. The general system will continue to provide the equivalent of 13 benefit payments a year. …


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