Better Pension Institutions in Latin America and the Caribbean: The Role of Monitoring Mechanisms and Automatic Adjustment Rules

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Nov 2020
To facilitate the process of adapting to aging without putting other economic development objectives at risk, pension systems are gradually incorporating mechanisms that change depending on the demographic context or financial balance. Due to the political and social complexity of parametric adjustments, some countries are implementing self-correcting mechanisms for imbalances in the pension system. These types of mechanisms have been generically called sustainability factors or adjustment rules. Sometimes, sustainability factors do not correct imbalances, but rather seek to make them visible and correct them in a balanced and distributed way over time through legislative work. The early adoption of a sustainability factor that reinforces, clarifies and ensures the balance of the system contributes to improving confidence in the sustainability of public finances, to make the need for adjustments transparent, and to clear up citizens' uncertainties. This note briefly collects and summarizes the international experience in the adoption of monitoring mechanisms and adjustment rules for pension systems.