Latin America and the Caribbean face the challenge of expanding pension coverage

Pension coverage reflects the reach of systems that provide income protection in old age, disability and survivorship. It includes both people who contribute during their working lives and those who receive benefits — contributory or non-contributory — when facing these contingencies. In other words, it shows who is covered by the system, who finances it and who receives protection after leaving the workforce. For Latin America and the Caribbean, pension coverage is essential to preventing poverty in old age and ensuring adequate income security during retirement.

Yet this objective faces structural barriers. The main challenge is the persistently high level of labour informality. More than half of all workers in the region are in informal employment, excluding millions from traditional contributory pension mechanisms. When a large share of the workforce does not contribute regularly, pension coverage remains limited, benefits may be inadequate and pressure on non-contributory schemes financed by the State increases..

Expanding pension coverage is no longer only a social policy aspiration. It is an urgent requirement to protect older persons and reinforce social cohesion.

Fabio Bertraonu, ILO Deputy Regional Director for Latin America and the Caribbean

© ONP

© ONP

In this context, expanding pension coverage is no longer only a social policy aspiration. It is an urgent requirement to protect older persons and reinforce social cohesion.

Demographic change is adding further pressure. By 2060, the number of older persons in Latin America and the Caribbean is expected to double compared with 2030, reaching nearly 220 million people, or close to 30 per cent of the population. At the same time, the ratio of older persons to the working-age population will rise sharply: the old-age dependency ratio is projected to increase from 15 to 40 older persons for every 100 people of working age. Pension systems will need to respond to an older population with greater protection needs and less room to delay reform.

The region’s pension history shows that there is no single solution. Between 1920 and 1980, systems linked to formal urban employment expanded, although they were generally fragmented and coverage rarely exceeded 30–35 per cent of the economically active population. Between 1981 and 2000, several countries introduced reforms based on individual capitalization schemes, with the expectation of expanding coverage and reducing the financial burden on governments. Those expectations were not fully realized.

Since the early 2000s, the region has moved towards broader pension protection. This has included the expansion of non-contributory pensions financed by the State for people unable to contribute sufficiently; parametric reforms adjusting retirement age, contribution years or benefit calculation formulas; and renewed debate on multi-pillar systems that combine contributory, non-contributory and semi-contributory components to better reflect diverse working lives.

Multi-pillar systems bring together complementary functions: preventing poverty in old age, providing insurance against contingencies and expanding opportunities for retirement savings. This approach is particularly relevant in a region characterized by diverse employment trajectories and low contribution densities.

The current picture remains highly uneven. On average, active contributors account for around 47 per cent of total employment in the region, but differences between countries are significant. Uruguay, Chile and Costa Rica exceed 60 per cent coverage, while Peru stands at 29 per cent, and Paraguay and the Plurinational State of Bolivia record even lower levels. This diversity confirms that pension coverage depends not only on pension system design, but also on labour market structures, available fiscal space and institutional capacity to sustain long-term policies.

A modern pension system must therefore balance three objectives: coverage, adequacy and sustainability. Coverage refers to who is protected; adequacy concerns whether benefits provide a decent standard of living in old age; and sustainability relates to the financial viability of the system over the medium and long term. No single pillar can achieve these three objectives simultaneously.

The non-contributory pillar is essential to reaching people excluded from formal employment, including people living in poverty, informal workers and many self-employed workers. Its strength lies in the ability to rapidly expand protection and reduce poverty in old age, although it also raises financing challenges. The contributory pillar remains central for workers with formal employment histories and sufficient contribution density. A semi-contributory component can also be valuable for people with interrupted careers or irregular incomes, provided it is supported by adequate fiscal resources and well-designed parameters.

Sustainably expanding pension coverage requires action on several fronts: labour formalization policies, simpler and more flexible contribution mechanisms for self-employed workers, stronger financial and pension literacy, automatic enrolment tools and portability of rights across schemes. It also requires strengthening fiscal capacity and building broad social agreements that provide legitimacy and stability to reforms.

Latin America and the Caribbean are not starting from zero, but neither can the region settle for partial progress. In a context of persistent informality and rapid ageing, expanding pension coverage is not only a technical task. It is a strategic decision to build societies that are more just, inclusive and better prepared for the future.

Source: Prepared on the basis of International Labour Organization, World Social Protection Report 2024–26: Universal social protection for climate action and a just transition (Geneva, 2025), and Fabio Bertranou, “Evolución de la cobertura previsional en los países de América Latina”, presentation delivered at the International Forum “Sistema previsional moderno, inclusivo y sostenible en el Perú”, Lima, 30 April 2026.