57 thousand of retirees receive pensions exceeding the maximum - IDESA

Report Nº: 86624/06/2020

57 thousand of retirees receive pensions exceeding the maximum

The pension that will be granted to a former vice-president is another example of the inequities underlying in the pension rules. The pay-as-you-go system should only cover up to a certain level of pension, and those who aspire to higher pensions should save on top of the limit in a capitalization scheme.

Finally, the possibility was opened up for former Vice President Boudou to receive a state pension, the amount of which would be around U$S 4,200 – U$S 5,700 monthly. Law 24,018 entitles this benefit, which establishes that presidents, vice presidents, and judges of the Supreme Court have access to a life-pension when they leave office. The pension level is the equivalent of a Court judge’s salary, reduced by three quarters for the vice presidents.

A controversy arose because Law 24,018 establishes that this retirement does not apply to officials who, after impeachment, have been removed for poor performance. Since the former vice president is under criminal procedures for corruption and was legally disqualified from exercising public service, some interpret that this special pension should not be granted. The other controversial issue is the amount of the credit, which is much higher than the maximum expressly provided for by law, currently set at U$S 1,600.

The question is how frequent these exceptions are. According to information published by the ANSES (the pension administration), there are 5.7 million retirees and pensioners, of which 57 thousand receive pensions over the maximum. This group is composed as follows:

  • 63% or 36 thousand persons receive only one retirement or pension.
  • 30% or 17 thousand persons receive two benefits made up of their own retirement and a pension derived from the spouse’s death.
  • 7% or 4 thousand persons obtained the benefit through the moratoriums (without enough contributions).

These data show the injustices behind the social security rules’ poor design. Inside a complex regulatory tangle, privileges are filtered out, entitling many people with pensions well over the maximum established by law. It is also allowed to duplicate benefits or use the moratoriums, the latter meaning without the minimum required contributions.

Establishing a maximum for both -contributions and pensions- is a rule adopted by well-organized pension systems. The reason is that the State must guarantee a reasonable proportion of their working life earnings to low and medium-income persons. But there is no reason for the State to ensure incomes beyond certain limits. It is inappropriate for a solidarity system to allocate collective resources to finance high pensions to people of high earnings.

For high-earning people whose aspiration is to maintain their level of life after retirement, there should be complementary regimes operating under strict capitalization rules. The share of the benefit above the maximum should be proportional to the saving efforts made during the active life. Under no pretext, funds from the general regime should be used to finance pension above the legal limit. This logic applies, for example, in the mixed pension system in Uruguay. In this country, people are covered in their first income brackets by the public solidarity pay-as-you-go system. After a certain level of salary, the surplus is put in the capitalization system. In this way, those who obtain high pensions do so because they saved during their active life and not for a legal entitlement as in Argentina.

It is suggestive that the leading promoter of the elimination of the capitalization regime in Argentina, alleging Social Justice, is now entitled to this irritating privilege. Such a level of degradation should be the driving force to an integral ordering of the pension system. In this regard, just as capitalization is not a good scheme for low-income people (a problem that Chile faces), the pay-as-you-go system is not suitable for high-income people (the problem that Argentina suffers). A smart combination of both regimes, as Uruguay has, leads to a much fairer and sustainable result.



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