Bucking trend, Bolivia lowers retirement age to 58

[December 11, 2010]  LA PAZ, Bolivia (AP) -- Bolivia enacted a law Friday lowering the country's retirement age to 58, bucking a global trend in which countries push people to work longer to counteract the burden on national treasuries of rising life expectancy.

Critics say the law, which also nationalizes the pension system and generously extends coverage to the poor, is overly ambitious and unsustainable.

Leftist President Evo Morales signed the bill surrounded by members of the powerful Bolivian workers federation, which helped draft the law.

Bolivia's current retirement age is 65 for men and 60 for women.

"We are fulfilling a promise with the Bolivian people. We are creating a pension system that includes everyone," Morales he said at the signing ceremony.

The law, which takes effect in a year, also extends pensions to the 3 million people -- 60 percent of the working population -- who labor in the informal economy as everything from street vendors to bus drivers.

"Evo Morales thinks about the poor people, so they can have something for when they get old," said Juan Quispe, 45, a father of three without a pension who sells ice cream on the street outside the National Palace.

The new law will allow Bolivia's 70,000 miners to retire two years earlier -- or as soon as age 51 if they have worked in life-sapping conditions deep underground. Mothers with more than three children will also get special treatment: the right to retire at age 55.

Morales, an Aymara Indian and the country's first indigenous president, grew up a dirt-poor llama herder and later went on to become a coca-growers' union militant.

The socialism he preaches is rooted in the communitarianism of his native culture. Since taking office in 2006, he has put this landlocked Andean nation's natural gas reserves, main phone carrier and electrical grid under state control.

"This is enormously important, possibly one of the greatest advances for lower- and middle-income people in South America in the last 15 years," said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington.

But critics say the new law could breed financial disaster.

Jacob Funk Kierkegaard, an economist at the Peterson Institute in Washington, says he knows of no other country lowering its retirement age at a time when higher life expectancy is burdening national budgets with pension obligations.

"I would say that they are setting themselves up for a train wreck down the road," he said in a telephone interview. "That they should be willfully going down this road strikes me as very, very shortsighted."

Other countries are moving in the opposition direction. France has led the charge to raise the minimum retirement age in Europe, increasing it last month to 62, with full benefits not available until age 67. Even socialist Cuba has raised its retirement ages from 60 to 65 for men, and from 55 to 60 for women.

Bolivia's deputy pensions minister, Mario Guillen, says his nation should not be compared to the rest of the world.

"A lot of Bolivian workers perform jobs that are eminently physical, not intellectual, and this means that at age 55 they don't have the ability anymore to keep working," he told The Associated Press. "Yet we made them continue."

Bolivia's average life expectancy is 68 years for women and 63 years for men, according to the U.N. Department of Economic and Social Affairs' Population Division. The division puts the global average at 68 for both sexes, with western Europe at 80 and Latin America at 73.

In addition, Guillen said, the conditions spurring European governments to raise retirement ages -- more elderly people and falling birth rates -- don't exist in this country of 10 million where per capita annual gross national income was $1,620 in 2008.

Lowering the retirement age had long been a priority for the labor federation, a strong backer of Morales.

Bolivia's business community is not pleased, however.

The president of the country's Federation of Private Businessmen, Daniel Sanchez, called the new law unsustainable and complained that his group was never consulted on it.

And the government has not explained the financial details of how the new system will work.

"The government is preparing a banquet for 300,000 people, but inviting 3 million to partake," said pensions expert Alberto Bonadona. "It will collapse."

In order to provide for those 3 million new future pensioners, employers will pay the equivalent of 3 percent of their payrolls into a "solidarity fund." Workers will add 0.5 percent of their wages on top of retirement contributions of their own.

Informal sector workers will qualify for pensions if they pay at least $13 a month into pension funds over a decade. They would then qualify for pensions beginning at $68 a month.

Thirteen years ago, Bolivia privatized pension funds after a state-run system collapsed under a cloud of mismanagement and theft.

Currently, Bolivia's two pension funds, covering 1.2 million private- and public-sector workers, are privately run by Zurich Financial Services and the BBVA bank. Together, they manage $4.5 billion.

However, the state has borrowed most of that money -- $3 billion at 2.6 percent interest -- and critics cite that as a worrisome precedent how the government will now administer all pensions.

[Associated Press; By PAOLA FLORES and FRANK BAJAK]

Associated Press writers Paola Flores reported this story from La Paz and Frank Bajak from Bogota, Colombia. AP writer Carlos Valdez in La Paz contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.