Pensions in El Salvador
For the large numbers of Salvadorans who live on what they earn in the informal economy, retirement and a pension are a largely impossible dream. A paper published earlier this year by the Institute of Social Studies in the Netherlands explores the reality of pensions and retirement savings in El Salvador. The abstract for the paper states:
This paper explores obstacles and opportunities to expand social protection for informal workers in El Salvador.
It rules out the short-term possibility that old-age social protection in El Salvador will be expanded through social security measures. Workers are entitled to pension only if they fulfil certain minimum requirements that are out of reach for the majority.
Instead, micro-finance institutions (MFIs) are proposed as an alternative to social protection. This is in part because the MFIs have taken the initiative to start a dialogue on micro-pensions. A few issues however have to be taken into consideration. The most important one is the lack of experience that MFIs in El Salvador have in managing savings, since they have focused more on micro-credit. Capturing savings requires institutions to be regulated and to incorporate additional functions in order to perform and operate with minimum risks to deposits. Moreover, earning trust to get credit is not equivalent to earning trust to capture savings.
«How likely is it when
entitlement to a minimum pension is not real even to others with more capacity to save? Can small savings amounts be really converted into annuities to grant pensions if there are no subsidies to support and increase a fund, and when there are even difficulties to grant pensions to formal retiring employees?»
Ouch! Even if all of the legislative, social, and cultural barriers she describes over 50 pages are breached, the truth of the matter is that tiny savings cannot generate decent annuities, no matter how sexy and trendy the term "micro-finance institution" sounds to overpaid U.N., Eurocrat, and Worldbank employees.
The problem is, at bottom, economic. As long as the country remains unindustrialized, unmined, under-roaded, and under power-planted, most people won't be able to generate sufficient wealth to save for old age.
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By the way, she only mentioned en passant and rather aseptically the recent ARENA theft of 30% of people's AFP savings. And she never mentioned that AFP savings are horrible moneypits because the remaining 70% cannot be meaningfully invested in equities. Instead, most of it goes into IOUs for future taxation. There is little genuine investment.
Somehow she didn't tie this lack of returns into why people avoid the whole tortuous (and thereby ruinous) government AFP concoction.
Salvadorans live for the present, get your check, go to pollo campero or cinemart, and enjoy time with the family. Live hard, work hard, die hard. Arena has always robbed all.
and with U.S. Support.
Dude, it is mandatory to join if you are any kind of legal employee. Just like they suck cash out of your paycheck in most countries for "social security". Same racket.
But I agree with you, it is a ripoff!
People should be able to get their paycheck free and clear of any government forcibly making you contribute to a government or private pension plan.
Pensions should be strictly voluntary.
In cases of natural disasters, a person in the effected area would be allowed to use up to 40% of funds paid into the account for family resettlement and basic needs.
I would like that better than any of the proposed social security rip-offs.