Marcos Falcão, Board Member of Icatu Hartford Seguros SA, provided insights into Latin America’s varied pension systems:
- Some systems depend mainly on state social security without supplementary plans, e.g. Central America, Ecuador and Venezuela
- Other systems are influenced by the “Chilean model”, where social security has migrated to a mandatory defined contribution system privately administered under government supervision, e.g. Argentina, Bolivia, Chile, Colombia, El Salvador and Peru
- There are also systems consisting of state social security and supplementary pension plans, e.g. Mexico and Brazil.
Looking ahead, experts anticipate a steep increase in the number of older people over the next 15 years, especially in Chile and Argentina. In order to finance this, a shift to company- and private-based provision for old age is unavoidable, and insurers will be working to meet the challenges with more high-quality, flexible retirement solutions.
Employee benefits in Europe
Europe’s 3-pillar pension system varies greatly from country to country, with the 2nd pillar covering an average of 85% of benefits provided. There are various different funding and taxation systems, and a fast-ageing population.
According to Rolf van Woerkom, Chief Market Officer Zwitserleven, France still relies mainly on its pay-as-you-go system, whose funding suffers from relatively low labour force participation, early retirement options and an increasingly ageing population. In the Netherlands, demographic changes are exerting cost pressures on the compulsory state scheme and on defined benefit pension schemes and state medical insurance.
Employee benefits in the Asia Pacific
The Asia Pacific region accounts for around 60% of the world’s population, but its countries have very different economies. According to Cedric Luah, Head of Sales Asia Pacific, Swiss Life Network, APAC pension systems are conceptually similar to the 3-pillar systems in Europe, but each country is at a different stage of development. Some countries like China, Thailand, South Korea and India are about to introduce pension schemes. Generally, APAC countries are leaning towards defined contribution schemes, although some, like Japan and China, face legacy issues.
The main challenges confronting the APAC region are:
- Rising incomes, lifestyle expectations and life expectancy
- Generally aging populations
- A shift from the extended family to individualism
- The breakdown of the lifetime employment model (e.g. in Japan)
- Underfunded social security systems
- A lack of compulsory 2nd and 3rd pillars with tax incentives, and
- Rising healthcare costs.
India plans to extend a new pension system to cover the private sector. China is introducing country-wide social security and private benefit plans in a multi-tier system, although the 2nd pillar will remain non-mandatory, thus leaving responsibility for benefits with employers. In line with this, China has started strongly promoting private corporate pensions.