RIO DE JANEIRO, BRAZIL – Workers in Brazil are retiring without enough assets to cover their needs, running a deficit of US$180 billion (R$887 billion) in retirement savings each year, according to a Swiss Re Institute study released Tuesday in Zurich. This gap increases the risk of poverty, poor health, and pressure on younger generations, the organization notes.
In Latin America as a whole, the savings gap is estimated at US$514 billion per year, or an average of US$50,000 per worker, or about 6.2 times the average annual income. The study projects that the situation will tend to worsen with the Covid-19 crisis.
The pension savings gap is defined as the difference between available pension funds and the pension needs of the working population. Swiss Re explains that it adds up all pension contributions (mandatory and voluntary), expected returns on pension funds, and savings accumulated during working years and subtracts them from the amount of money needed to fund 65% of income.
In total, emerging markets run a deficit of US$5.4 trillion per year. Cumulatively, this savings gap reaches US$106 trillion in the group. In Latin America, the accumulated deficit is estimated at US$10 trillion for all workers’ pensions.
Brazil has the largest retirement savings gap due to its large working population. At the same time, the country has what Swiss Re calls the “highest pension adequacy,” with funds that can provide about 50% of the retirement income needed.
By comparison, Chile has the largest pension savings deficit per worker in the region, at US$133,000. The country’s estimated resources cover only 42% of the retirement income that retirees will need.
This situation in emerging markets is due to many factors. Swiss Re notes that aging populations are putting increasing pressure on national pension systems. A shrinking workforce supports an aging population. Public pension spending is rising sharply as a share of gross domestic product (GDP), putting pressure on public budgets, while falling interest rates increase the long-term challenge to pension resources. The Covid 19 crisis has exacerbated these trends in the short term.
Pension coverage in Latin America is historically low, says Kaspar Müller, president of Reinsurance Latine America, in Swiss Re’s statement. Pension coverage, or the proportion of the working population covered by social security, is low, partly reflecting the high proportion of informal work in the region’s economies.
As a result, people in Brazil, Latin America, and emerging markets as a whole will increasingly need to organize their own retirement savings. The study notes that pension reforms shift responsibility for saving and managing risk throughout life – from mortality risk to morbidity to investment performance – to individuals.
Swiss Re, one of the world’s largest reinsurers, sees potential in the current context as people require more personalized insurance coverage in the form of life, health, disability, and critical illness coverages to manage risk.
Source: Valor