Pensions and old - age poverty in Uruguay

We simulate the budget of the main pension institution of the country, the Banco de Previsión Social (BPS), from 1995, the year the reform was passed, to 2050, when the new system should be mature. We perform several sensitivity analyses to evaluate which are the key exogenous variables and parameters determining the financial performance of the BPS in the medium to long run. According to our simulations, the budget of the BPS will be highly sensitive to the ages of retirement and to the ability and willingness of the institution to control the fulfilment of the required conditions to receive a contributory pension. The flexibility with which the BPS granted these benefits in the past had significant effects on its financial performance, according to these simulations. In recent years, the BPS has tightened the controls, with potentially significant effects on both the budget and the number of individuals excluded from the contributory programs. We study the contingent fiscal liabilities that are associated to the risk that the number of applications to the assistance programs grows because of the tougher conditions in the contributory programs. We also evaluate some alternatives to reform the non-contributory programs that, among other things, would extend their current coverage. 1 Departamento de Economía, FCS-UDELAR. [email protected]. Tel: (5982) 409 29 73, 401 77 07. 2 Anna Caristo, Natalia Ferreira-Coimbra and Gabriel Katz provided an invaluable assistance in this project. Gabriel Lagomarsino kindly helped us to better understand the PIT-CNT proposal to reform the noncontributory-old-age program. The World Bank financed the study. The author assumes full responsibility for its specific contents.