Only four in ten workers in Latin America and Caribbean are saving for retirement, the Inter-American Development Bank has said.
A report published last week highlighted the scale of inadequate pension provision across the region. As well as low levels of saving, most pensioners in Latin America and the Caribbean receive incomes of less than $10 a day.
By 2050, up to 140 million people in the region will reach retirement age and, without adequate reforms, more than half of these - 83 million -would not be in receipt of a pension.
The development bank said that this state of affairs is likely to trigger a situation that could have serious social and economic consequences as the population ages.
But, according to Better pensions, better jobs: towards universal coverage in Latin America and the Caribbean, there is a possibility that an adequate pension could be guaranteed for all citizens.
IDB president Luis Alberto Moreno pointed out that the creation of formal jobs is key to assure sustainable pension systems.
'We believe that pension reform would not only provide incentives to boost formal employment and productivity, but also encourage investments in infrastructure and human capital in the region,' he said.
Carmen Pagés-Serra, head of the IDB's labour markets and social security unit and co-author of the report, added: 'Reform goes hand in hand with establishing sustainable and efficient anti-poverty pension schemes and simultaneously encouraging the growth of formal employment, for example, by subsidising pension contributions. Moreover, advances are required in the areas of financial controls, information and education.'
The region is still young, which makes it easy for political approval of the reforms and reduces their costs, the IDB said.
It estimated that reforms tackling universal coverage and job creation could cost around 1% of gross domestic product, expected to be funded through sales or commodity taxes. Universal pension coverage was possible and financeable, the bank added.
'However, to achieve sustainability [it] is necessary to make a global, integral, transparent and effective reform that should allow the pension system to meet its two functions to eliminate poverty in old age and to maintain the workers standards of living when they stop working.'
Commenting on the IDB report, Mario Marcel, deputy director of governance and territorial development at the Organisation for Economic Co-operation and Development, said: 'Extending the coverage of pension systems is the most important challenge in building social protection systems in Latin America today.'