The impact of a minimum pension on old age poverty and its budgetary cost. Evidence from Latin America.

Alleviating old age poverty requires a different approach from other age groups. This paper examines the impact on old age poverty and the fiscal cost of universal minimum old age pensions in Latin America using recent household survey data for 18 countries.

The authors:

• measure old age poverty rates for all countries
• discuss the design of minimum pensions schemes, means-tested or not, as well as the disincentive effects that they are expected to have on the economic and social behavior of households including labor supply, saving and family solidarity
• uses the household surveys to simulate the fiscal cost and the impact on poverty rates of alternative minimum pension schemes in the 18 countries

The authors draw main conclusions from the comparison of old age poverty rates:

• poverty rates are consistently lower for the elderly than for the whole population in Argentina, Uruguay, Brazil and Chile, where minimum pension systems already exist
  
• in the other countries, the situation is heterogeneous and depends on the poverty line chosen. Using half the median income, Bolivia, Columbia, Costa Rica, Honduras and Mexico have comparable overall levels of poverty in old age and the elderly are poorer than the rest of the population
• the difference between old age and overall poverty rates is not very high for all countries with limited pension systems
• for financial sustainability they suggest that countries with national income above the Latin American average could and should opt for a minimum pension equal to half the median income. For the others, a $2 a day pension is reasonable
• for political sustainability, it is important to give the minimum pension scheme a constitutional status and a frame that makes it adjust to changing social or economic parameters