With the enactment of the Pension Law (No. 1,732) of November 29 1996, the pension and social security systems in Bolivia have been reformed and a Pensions Superintendency created to oversee their implementation.
Having abolished the old system of individual entitlements, the new pension regime has introduced Individual Capitalization with Defined Contributions. Under this system, two funds have been created; the Collective Capitalization Fund made up of 50% of the shares of capitalized companies formerly owned by the state, and the Individual Capitalization Fund, made up of contributions of those associated under the new system with a monthly income of over US$50.
The management of the two funds is being undertaken by two private pension fund managers (AFPs), Consorcio Invesco plc Argentaria and Banco Bilbao Viscaya. Both companies were chosen last January following an international tender organized by the Ministry of Capitalization.
Each AFP operates in one of two exclusive areas — northern and southern Bolivia — and in common areas where the companies operate. The common areas include of the cities of La Paz, Cochabamba, Santa Cruz and El Alto, which together account for 57% of the country's total population.
One of the notable features of the reform has been the creation of BONOSOL, a payment system of the Collective Capitalization Fund used to distribute yearly retirement pensions to all Bolivian citizens over the age of 65 and to pay for funeral services for all Bolivians not already covered.
The Collective Capitalization Fund is made up of 50% of all the shares of the capitalized state companies, which belong to all Bolivian citizens over the age of 21 as of December 31 1995. The shares become effective or are liquidated through the payment of the BONOSOL, which amounts to US$250 per year. This year, the Bolivian government intends to distribute the BONOSOL to over 300,000 senior citizens, thus providing additional and much needed family income to the poorest sections of the population.
The Individual Capitalization Fund provides a long-term compulsory social security system, channelling deductions made by associates to individual savings accounts which are used to supply retirement, accident and funeral expenses, and professional and general risk pensions. This fund is based on employer and employee contributions.
Diego Rojas Moreno
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