How AFPs Work: AFPs are private financial institutions that manage pension funds under an individual capitalization scheme. Unlike the pay-as-you-go system of the Social Security Institute (IPS), where contributions from active workers finance current pensions, AFPs operate as follows: Each worker contributes a percentage of their salary (typically 10–15%, as in Chile; 10% or 13% in Peru) to an individual account.

Paraguay faces a structural challenge that limits its economic and social development: high levels of informal employment. According to data from the National Institute of Statistics (INE), nearly 70% of Paraguayan workers are employed in the informal economy, without access to social security, formal contracts, or employee benefits. This situation not only perpetuates precariousness but also undermines the sustainability of the pension system, a key pillar for ensuring citizens’ economic stability in old age.

Paraguay, with a 100% renewable energy mix based on hydroelectric power, is seeking to advance toward an energy transition that diversifies its power generation with natural gas and non-conventional renewable sources. The construction of a natural gas pipeline from Argentina, combined with the opening of the electricity market to the private sector, represents a strategic opportunity to modernize the grid, improve electricity distribution, and establish itself as a competitive and sustainable regional energy hub.

Paraguay, a country with an energy mix historically dominated by hydropower, faces a critical challenge by 2030: meeting rapidly growing energy demand while ensuring sustainability, energy security, and economic development. With almost total reliance on the Itaipú, Yacyretá, and Acaray dams, which generate 100% of the country’s electricity, Paraguay boasts a unique renewable energy mix.

Paraguay faces a critical crossroads in its pension system, marked by low coverage, inequities, and the risk of fiscal collapse. Against this backdrop, the proposal for a structural reform based on individual capitalization is gaining momentum as an alternative to the current pay-as-you-go model. In this article, our international analyst, César Addario Soljancic, explores in depth how this transition could be implemented, its impacts on workers, lessons from countries such as Chile and Costa Rica, and the keys to achieving a more sustainable, equitable, and modern system in the Paraguayan context.