The pension system in Peru: Parallels and intersections

Abstract

In this article, we estimate the active and passive contributory pension coverage rates in Peru since the structural reform of social security in 1992. Further, we delineate a supply‐and‐demand model for the pension market. Using a diagram based on this model, we analyze the impact of re‐reforms that have increased the competitiveness of the pension system and in an effort to promote worker affiliation. Re‐reform has shifted the supply of pension services, but the demand for such services has remained constant at 28% of the labor force. Thus, coverage has not meaningfully increase. In the conclusion section of the article, we consider various policy interventions intended to increase demand, which might include instituting mandatory contributions for the self‐employed and/or increasing the proportion of registered employees. In addition, to mitigate income insecurity for older people, given the low active and passive coverage rates, we recommend that access to social pensions be increased.Key Practitioner Message: •Estimation of the active and the passive pension coverage trajectories since the social security structural reform. •Delineation of a conceptual framework to describe the pension market using supply and demand functions. •Alternative interventions to increase coverage, that is, strengthening the competitiveness of the pension market, shifting the demand and universal social pensions.