Pension Reform in El Salvador

El Salvador implemented a systemic pension reform in 1998. The publicly-managed, defined benefit and unfunded pension schemes for formal sector workers were replaced by a privately-managed scheme with individual accounts. The experience during the first five years of the reform has been marred by problems related to the valuation of accrued rights in the old scheme and government intervention. There are also growing concerns about market concentration in a country where only two pension fund managers compete in a system which is mandatory for all formal sector workers. The case of El Salvador raises the question as to whether a small country with limited governance capacity can succeed with this reform model.