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Individualizing Social Risks: International and Legal Dimensions of Privatization of Pension Schemes in Latin America
Published online by Cambridge University Press: 18 July 2014
Abstract
The Chilean model of privatized pension schemes has expanded in Latin America in the last ten years and has generated much interest at the international level. This raises important questions in relation to the individualization of social risks and the erosion of the human rights underpinnings of social security. This article looks at the characteristics of Latin American privatized pension schemes and explores some of the motivating factors behind the trend toward privatization. The approaches to pension scheme reform advocated by the World Bank and the International Labour Organization are also compared. The legal standards and principles having generally guided the design of pension schemes until now provide insight for an examination of some of the issues surrounding the implementation of privatized pension schemes. Among these issues are the changing role of the State with respect to social protection and the ability of more vulnerable groups to exercise their right to social security.
Résumé
Depuis dix ans, le modèle chilien de privatisation des régimes de pension s'est répandu en Amérique latine et suscite beaucoup d'intérêt sur le plan international. Ceci soulève des questions importantes quant à l'individualisation des risques sociaux et à l'érosion des bases de la sécurité sociale fondées sur les droits de la personne. Cet article examine les caractéristiques des régimes privatisés de pensions en Amérique latine et explore certains facteurs qui ont motivé la tendance vers la privatisation. Les approches préconisées par la Banque mondiale et l'Organisation internationale du travail pour la réforme des régimes de pension sont également comparées. Les normes juridiques et les principes généralement reconnus pour l'élaboration des régimes de pension fournissent une toile de fond pour l'examen de questions entourant la mise en œuvre de régimes privatisés, notamment le rôle changeant de l'État relativement à la protection.
- Type
- Citizenship, Social Rights and Social Cohesion Citoyenneté, droits sociaux et cohésion sociale
- Information
- Canadian Journal of Law and Society / La Revue Canadienne Droit et Société , Volume 16 , Issue 2 , August 2001 , pp. 43 - 64
- Copyright
- Copyright © Canadian Law and Society Association 2001
References
1 See generally Committee on Economic, Social and Cultural Rights (CESCR), “General Comment 6: The Economic, Social and Cultural Rights of Older Persons”, 13th Sess., UN Doc. E/1996/22 (1995).
2 Argentina (1993): Ley 24.241; Bolivia (1997): Ley 1,732; Colombia (1993): Ley No. 100; Costa Rica (1995), Ley 7,523; Chile (1980): Decreto Ley No. 3,500; Mexico (1996): Ley de los Sistemas de Ahorro para el Retiro; Peru (1992) 25 Decreto Ley 897; Uruguay (1995) Ley 76,713.
3 For a detailed comparison of privatized pension schemes in Latin America, see Queisser, M., The Second-Generation Pension Reforms in Latin America (Paris: Organisation for Economic Co-operation and Development (OECD), 1998)CrossRefGoogle Scholar; Bertín, H. D. & Perrotto, A. M., Los nuevos regimes de capitalización en América Latina: Argentina, Chile, Colombia, Costa Rica, México, Perú y Uruguay, Serie Estudios Especiales No. 9 (Buenos Aires: Superintendencia de Administradoras de fondos de jubilaciones y pensions, May 1997)Google Scholar; Bardemos, A., Pension Reform in Latin America (Aldershot: Ashgate, 1998)Google Scholar; Organización Iberoamericana de Seguridad Social (OISS) (ed.), Las Reformas de la Seguridad Social en Iberoamérica (Madrid: OISS, 1998).Google Scholar For an overview and typology of public and private pension systems, see Gillion, C. et al. , Social Security Pensions: Development and reform (Geneva: ILO, 2000).Google Scholar
4 The privatized schemes include coverage of not only old-age pensions, but survivor pensions, disability pensions and funeral expenses, in most cases.
5 Asociación Internacional de Organismos de Supervisión de Fondos de Pensiones (AIOS), Los regímenes de capitalización individual en América Latina: Boletín Estadístico, No. 4, December 2000 at 22, online AIOS: http://safjp.gov.ar/DOCS/aios.htm~bole0012.Google Scholar The AIOS was created in 1995 by the AFP supervisory agencies of Argentina, Chile, Peru and Mexico.
6 The acronym used to designate private pension fund administrators varies from one country to another. For example, in Uruguay they are called “AFAPs” for “Administradoras de Fondos de Ahorro Previsionai” and in Mexico “AFOREs” for “Administradoras de Fondos para el Retiro”. For the purpose of this text, they will hereinafter be designated as “AFPs”.
7 In Argentina, Uruguay and Mexico, employers contribute as well, whereas in Chile, Colombia and Peru only workers contribute, although employers can contribute on a voluntary basis. In Argentina and in Mexico, the State contributes a small amount as well. See Bertin & Perrotto, supra note 3 at 111.
8 For example, in Mexico, the main shareholder of the largest AFP is a Mexican bank, Bancomer. Bancomer itself is part of BBVA, a Spanish financial group. Ninety-seven percent of the shares of the Chilean AFP Santa María belong to Aetna S.A., which is a subsidiary of the Dutch financial and insurance group ING. Santa María Internacional S.A., a subsidiary of AFP Santa María, controls almost 20% of the Peruvian AFP Integra. Online: Bancomer http://www.bancomer.com/aforen/home.asp; BBVA http://www.-bbva.es, AFP Santa Maria http://www.stamaria.cl.
9 The percentage normally varies between one half and two and a half percent. This means that the commission paid on actual contributions to an AFP would be around 18%. AIOS, supra note 5 at 22. The ILO Committee of Experts on the Application of Conventions and Recommendations (CEACR) has criticized the fact that AFPs are operated with a view to profit. See CEACR, Individual Observation concerning Convention No. 35, Old-Age Insurance (Industry, etc.), 1933, Peru (ratification: 1945), 1999, at para. 4Google Scholar [hereinafter “CEACR (Peru)”]; CEACR, Individual Observation concerning Convention No. 35, Old-Age Insurance (Industry, etc.), 1933, Chile (ratification: 1935), 1995, at para. 3 [hereinafter “CEACR (Chile)”].
10 The Mexican law however limits any one AFP's market share to 20%. Ley de los Sistemas de Ahorro para el Retiro, art. 26. In Chile there are eight AFPs, the two largest of which control 54% of the funds administered under the privatized system. In Peru there are four AFPs, with the two largest controlling 60% of the funds. In Mexico there are 13, and the two largest control 39% of the funds. AIOS, supra note 5 at 14.
11 For example, in Mexico, a worker can only change AFPs once a year (Ley de los Sistemas de Ahorro para el Retiro, art. 74).
12 Bertin & Perrotto, supra note 3 at 106 and 107, Queisser, supra note 3.
13 See Bertin & Perrotto, supra note 3.
14 The Peruvian law, for example, stipulates that AFPs have to invest funds as prescribed by law and have to maintain a minimum return on investments. AFPs also have to maintain a fluctuation reserve. As well, the types of investments that can be made are legislated. Decreto Ley No. 25.897, arts. 22, 23 and 25. See also Queisser, M., “Regulation and supervision of pension funds: Principles and practices” (1998) 51:2International Social Security Review 39.CrossRefGoogle Scholar
15 According to the AIOS, AFPs' commissions averaged $131 US for every person who contributed to his or her AFP account in 2000 (Argentina: $258, Chile: $99, El Salvador: $212, Mexico: $94, Peru: $137, Uruguay: $90). These commissions are high in relation to average incomes. To illustrate, in 1997, 49% of Peru's population had an income of $1 US a day, while in 1992, 38.5% of Chileans had an income of $2 US a day. AIOS, supra note 5 at 20; ILO, World Labour Report 2000: Income security and social protection in a changing world (Geneva: ILO, 2000)Google Scholar, “Table 8: Poverty”, at 289 [hereinafter “World Labour Report 2000”].
16 Argentina: Superintendencia de Administradoras de Fondos de Jubilaciones; Bolivia: Superintendencia de Pensiones, Valores y Seguros; Colombia: Superintendencia Bancaria; Costa Rica: Superintendencia de Pensiones; Chile: Superintendencia de Administradoras de Fondos de Pensiones; http://www.safp.cl; El Salvador: Superintendencia de Pensiones; México: Comisión Nacional del Sistema de Ahorro para el Retiro — CONSAR; Peru: Superintendencia de Administradoras Privadas de Fondos de Pensiones; Uruguay: Banco Central de Uruguay - Area de Control. For access to these agencies' webpages consult online: AIOS http://safjp.gov.ar/DOCS/aios.htm~bole0012. See Bertín & Perrotto, supra note 3 at 118.
17 See Palacios, R. & Rofman, R., Annuity markets and benefit design in multipillar schemes: Experience and lessons from four Latin American countries (Washington: World Bank, February 2000).Google Scholar The annuity option has led to an important development of the insurance sector in the region.
18 This option has been criticized by the Committee of Experts on the Application of Conventions and Recommendations (CEACR), since, contrary to international standards on the subject, workers are not guaranteed an old-age pension throughout the duration of the contingency. CEACR (Peru), supra note 9 at para. 1.
19 See R. Palacios & R. Rofman, supra note 17 at 40. In Chile, a course on pensions has been added to the standard curriculum at the high school level on an experimental basis.
20 See generally C. Gillion et al., supra note 3; OECD, Reforms for an Ageing Society (Paris: OECD, 2000)Google Scholar; World Bank, Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth (Oxford: Oxford University Press, 1994).Google Scholar
21 See World Labour Report 2000, supra note 15 at 259–260 (“Table 2: Demographic trends: Ageing”).
22 Standing, G., Global Labour Flexibility: Seeking Distributive Justice (Great Britain: Macmillan, 1999) at 270.CrossRefGoogle Scholar
23 “Employment is the key to the future financing of social protection in all societies. Ageing is not so much a threat for social security systems as a challenge for economic and social policy-making and for the labour market.” ILO, Social security: Issues, challenges and prospects. Report VI, Sixth item on the agenda, International Labour Conference, 89th Session, 2001 at 50Google Scholar.
24 See below.
25 See generally Guislain, P., The Privatization Challenge: A Strategic, Legal and Institutional Analysis of International Experience (Washington: World Bank, 1997) at 73ff.CrossRefGoogle Scholar
26 See M. Pasco Cosmópolis, “Son los sistemas privados de pensiones formas de seguridad social?” in OISS, supra, note 3, at 167ff; A. Jiménez Fernández & F. Jacob Sánchez, “La reforma de los sistemas de pensiones en Iberoamérica” in OISS, supra note 3 at 167ff; Queisser, supra note 3 at 17ff; Barrientos, supra note 3 at 125ff.
27 For example, in Mexico under the previous system, in 1996, 32% of workers were contributing to the public scheme but only 10% were protected. World Labour Report 2000, supra note 15 at 298 (“Table 11: Social protection coverage: Protected persons and contributors”). Characteristics of the informal sector: “In principle, informal sector workers are employed in (micro-) enterprises that have the following characteristics: the owner is personally liable for gains and losses (the enterprise is unincorporated); there is an absence of full and written accounts; the enterprise has less than 10 employees at a time. Workers outside the formal sector are generally employed in small, often family- based enterprises. … When they are wage workers, they usually have low incomes. Most informal sector workers and their families live in poverty, and a large proportion of them are women.” van Ginneken, W., Social Security for the Excluded Majority: Case studies of developing countries (Geneva: ILO, 1999) at 6.Google Scholar
28 Today, in Mexico, for example, while men are on average employed for a period of 51 years and not employed for 20 years, women are employed for 23 years and not employed for 54 years. The longer life expectancy of women, combined with their absences from the labour market, dramatically reduce their social security contribution period. OECD, supra note 20 at 182–83.
29 Other organizations such as the OECD, which is less present in Latin America on the policy level, have also been studying the use of privatized pension systems as a response to the perceived crisis of public pension systems. See e.g. OECD, supra note 20.
30 World Bank, supra note 20 at 15. The World Bank provided support for the privatization of Mexico's pension system with technical assistance and loans, and has been involved in pension reform in Argentina (see the World Bank's internet site at: www.worldbank.org. See also Holzmann, R., “The World Bank approach to pension reform” (2000) 53:1International Social Security Review 11.CrossRefGoogle Scholar
31 See Williamson, J. B. & Pampel, F. C., “Does the privatization of social security make sense for developing nations?” (1998) 51:4International Social Security Review 3CrossRefGoogle Scholar; Singh, A., “Pension reform, the stock market, capital formation and economic growth: A critical commentary on the World Bank's proposals” (1996) 49 International Social Security Review 21CrossRefGoogle Scholar; Beattie, R. & McGillivray, W., “A risky strategy. Reflections on the World Bank Report Averting the Old Age Crisis” (1995) 48:3International Social Security Review 5.CrossRefGoogle Scholar
32 Gillion, C., “The development and reform of social security pensions: The approach of the International Labour Office” (2000) 53:1International Social Security Review 35 at 62.CrossRefGoogle Scholar
33 ILO, supra note 23 at 72ff.
34 See e.g. CEACR (Chile), supra note 9.
35 (1976) 993 UNTS 3, art. 9 (right of everyone to social security) and art. 11 (right to an adequate standard of living).
36 Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social and Cultural Rights “Protocol of San Salvador”, 17 November 1988, O.A.S.T.S. No. 69 (entered into force 16 November 1999): art. 9 (right to social security to protect from the consequences of old age), art. 17 (the right to special protection in old age).
37 American Declaration of the Rights and Duties of Man, OR OEA/Ser.UV/II.23/Doc. 21, rev. 6 (1948), art. 16 (the right of every person to social security), art. 35.
38 See e.g. World Conference on Human Rights, Vienna Declaration and Programme of Action, UN Doc. A/CONF.157/23 (1993); International Covenant on Economic, Social and Cultural Rights, arts. 2(2), 3.
39 See how this recognition has been incorporated into international law in the Convention for the Elimination of All Forms of Discrimination Against Women, (1981) 1249 UNTS 13 at art. 11.
40 See e.g. the Preamble of the ILO Constitution. Constitution of the International Labour Organisation and Standing Orders of the International Labour Conference (Geneva: ILO, 1998).
41 See Old-Age Insurance (Industry, etc.) Convention (No. 35), 1933 (shelved); Old-Age Insurance (Agriculture) Convention (No. 36), 1933 (shelved); Invalidity Insurance (Industry, etc.) Convention (No. 37), 1933 (shelved); Invalidity Insurance (Agriculture) Convention (No. 38), 1933 (shelved); Survivors' Insurance (Industry, etc.) Convention (No. 39), 1933 (shelved); Survivors' Insurance (Agriculture) Convention (No. 40), 1933 (shelved); Maintenance of Migrants' Pension Rights Convention (No. 48), 1935 (shelved); Invalidity, Old-Age and Survivors' Benefits Convention (No. 128), 1967; Invalidity, Old-Age and Survivors' Insurance Recommendation (No. 43), 1933; Invalidity, Old-Age and Survivors' Benefits Recommendation (No. 131), 1967; Social Security (Minimum Standards) Convention (No. 102), 1952. For ratifications see online: ILO http://ilolex.ilo.ch.
42 ILO, supra note 23 at 1. “Follow-up on consultations concerning instruments on social security”, Governing Body, 279th Session, Geneva, November 2000, GB.279/LILS/-WP/PRS/2. A general discussion on social security figures on the agenda of the 2001 International Labour Conference.
43 Constitución Política de la República de Chile de 1980 con reformas de 1997, art. 19 (18), online: Base de Datos Políticos de las Americas http://www.georgetown.edu/pdba/-Constitutions/.
44 Constitución Política del Perú, 1993, arts. 4, 10, 11, 58, Base de Datos Políticos de las Americas, supra note 43. It should be noted that the Peruvian Constitution of 1979 underwent important modifications in 1993, including the repeal of the right to an adequate standard of living (previously art. 2.15). See Inter-American Commission on Human Rights, “Second Report on the Situation of Human Rights in Peru 2000 (Chapter VI: Economic, social and cultural rights)” par. 12, online: Inter-American Commission on Human Rights http://www.cidh.oas.org.
45 Constitución Política de los Estados Unidos Mexicanos, 1917, con Reformas de 1998, art. 123(29), Base de Datos Políticos de las Americas, supra note 43.
46 N. de Buen Lozano, «La reforma de la seguridad social en México (un cuento y no de hadas)» in OISS supra note 3 at 151.
47 Constitución de la República Oriental de Uruguay, 1997, art. 67, Base de Datos Políticos de las Americas, supra note 43.
48 In Chile, where the privatized system has been in place longest, funds administered by AFPs represent almost 60% of the GDP. AIOS, supra note 5 at 11.
49 On the right to social security see e.g. CESCR, supra note 1 at paras. 26–30; Lamarche, L., “The Right to Social Security as a Human Right Guaranteed by the Covenant on Economic, Social and Cultural Rights: The Time Has Come to Think About It” (November 2000) [unpublished, archived with author].Google Scholar
50 The human rights approach to social security is noticeably absent in the available literature on the privatization of pension systems.
51 C. Gillion et al., supra note 3 at 399.
52 Ibid. at 400–404.
53 This has been reiterated by the ILO Committee of Experts on the Application of Conventions and Recommendations (CEACR): “Any discriminatory treatment in respect of benefits or of conditions of entitlement to social security, the application of compulsory or voluntary statutory or occupational schemes, contributions and the calculation of benefits should be eliminated.” CEACR, Equality in Employment and Occupation (General Survey), International Labour Conference, 83rd Session, Report III, Part 4B, 1996 at para. 113.Google Scholar
54 World Labour Report 2000, supra note 15 at 285–286 (“Table 7: Informal sector employment”).
55 van Ginneken, supra note 27 at 3.
56 In Argentina and Uruguay, self-employed workers must be affiliated and contribute to an AFP. H. D. Bertin & A. M. Perrotto, supra note 3 at 107.
57 Manchester, J., “Compliance in Social Security Systems Around the World” in Mitchell, O.et al., Prospects for Social Security Reform (Philadelphia: University of Pennsylvania Press, 1999) at 295, 305.Google Scholar
58 AIOS, supra note 5 al 6.
59 AIOS, supra note 5 at 7.
60 Mulligan, M., “Chile to act on pension fund arrears”, Financial Times (18 October 2000) online: FT.com http://news.ft.com/ft/.Google Scholar According to the Chilean Labour Secretariat, 80% of cases brought before industrial tribunals in Chile concern the recovery of contributions to AFPs that have not been remitted by employers. See also Instituto de la Mujer and Foro de mujeres sindicalistas (IMFMS), Las trabajadoras por un sistema de seguridad social más justo (Santiago: IMFMS, 1997) at 14.Google Scholar
61 For example, the Mexican law stipulates that two representatives from national workers' organizations participate in the supervision of the AFPs on the Comisión Nacional del Sistema de Ahorro para el Retiro. Ley de los Sistemas de Ahorro para el Retiro, art. 70.
62 CEACR (Peru), supra note 9 at para. 5.
63 On the question of workers' “voice” and its effects on distributive justice, see Standing, supra note 22 at 42–44.
64 See e.g. Human Rights Committee, “Equality of rights between men and women. General comment 28”, 29 March 2000, CCPR/C/21/Rev. 1/Add. 10, paras. 3, 4 and 31: “31. The right to equality before the laws and freedom from discrimination, protected by article 26, requires States to act against discrimination by public and private agencies in all fields. Discrimination against women in areas such as social security laws […], violates article 26 [of the Covenant]”. On gender equality in social security systems, see generally ILO, supra note 23 at 37 ff.
65 IMFMS, supra note 60 at 11 ff.
66 Some countries, such as Argentina, allow AFPs to charge a fixed commission. See Bertin & Perrotto, supra note 3. See IMFMS, supra note 60 at 11ff.
67 See CESCR, “The nature of States parties obligations (Art. 2, par.l). General comment 3” December 14, 1990, Fifth session, 1990; CESCR, “The domestic application of the Covenant. General comment 9” December 3, 1998, E/C. 12/1998/24.
68 See Bertin & Perrotto, supra note 3.
69 «La CONSAR multó a 10 Afore por un millón 818 mil pesos», La Jornada [Mexico] (9 April 2000) online La Jornada http://www.jornada.unam.mx.
70 See e.g. Holzmann, supra note 30 at 20–23.
71 M. Queisser, supra note 3 at 39ff.
72 International Social Security Association (ISSA), The Social Security Reform Debate: In Search of a New Consensus: A Summary (Geneva: ISSA, 1998) at 7.Google Scholar On the high costs of the privatized system for contributors, see A. Barrientos, supra note 3 at 103–104.
73 Barrientos, supra note 3 at 231 ff; Williamson & Pampel, supra note 31.
74 CESCR, “Concluding Observations of the Committee on Economic, Social and Cultural Rights: Mexico” 08/12/99, E/C.12/1/Add.41 at para. 24. See also a report presented by 91 Mexican non-governmental organizations: “Situation of economic, social and cultural rights in Mexico: Mexico” 13/11/99, CESCR, 21st Session, E/C.12/1999/NGO/3 at para. 21. These NGOs underlined that with privatization the number of weeks of contributions necessary to be able to withdraw a pension increased from S00 under the public scheme, to 1250 under the new scheme. See also CESCR, “Concluding Observations of the Committee on Economic, Social and Cultural Rights: Argentina”, 08/12/99, E/C.12/1/Add.38 at paras. 18, 33.
75 Standing, supra note 22 at 274.
76 Holzmann, supra note 30 at 16.