Report Nº: 106205/04/2024


The government and Congress are preparing to modify the pensions indexing rule. This will stop the pensions’ loss of real value, but it perpetuates past losses. It is the right time to improve the situation of those who got their pension benefit with the full contributions required without using the moratoriums.        

Pensions suffered a deep deterioration due to the inflationary acceleration, which started in 2017 and deepened since the end of last year. In March 2024, retirements (without considering the bonus) are 23% lower in real terms compared to the average of 2023 and 50% lower compared to the average of 2017. This is the situation in which a change in the pensions indexing rule would be applied. 

There is consensus on the change to update pensions for inflation, but not on how to do it. One of the projects proposes adjusting April pensions with January inflation and from there updating the pensions with a lag of 3 months (t-3). Another bill proposes to adjust the April pensions with the February inflation plus a one-time adjustment of 20% to compensate for the January inflation and thereafter to continue adjusting with a delay of 2 months (t-2). The government announced the enactment of an emergency decree (DNU) with a scheme similar to the second proposal but reducing the one-time adjustment to 12.5%.

The question to be asked is how these three alternatives impact on pensions. Considering the minimum retirement and adjusting for inflation it is observed that:

  • Adjusting in April with January inflation will cause that in June 2024 retirements will be approximately 11% lower than the 2023 average.
  • Adjusting in April with February inflation plus 20%, on a one-time basis, will cause in June 2024 pensions to be 4% lower than the 2023 average.
  • Adjusting in April for February inflation plus 12.5%, on a one-time basis, will bring pensions in June 2024 to 9% below the 2023 average.  

These data show that by adjusting pensions for inflation, the real loss suffered due to past inflation is crystallized. With none of the three criteria, pensions will recover the low level they had in 2023 and will be well below the level they had in 2017. Those who accumulate the least loss, in the short term, are those who propose to start applying February inflation (t-2), although in the medium term, as inflation falls, the gaps will narrow with (t-3). But the most important point is that those that update with a 2-month lag are legally weak because they inconsistently join the old formula (it does not take into account the variations in January) and operationally very difficult to implement because ANSES needs at least 3 months to settle the pensions adjusted for inflation. 

But most important is that starting to update for inflation slows down the loss of real value, but perpetuates the losses accumulated since 2017. This is an opportunity to sort out the inequities committed in the last 20 years with the massive and indiscriminate distribution of contributory pensions without contributions. In this perspective, it is advisable to adopt the formula of starting to adjust in April with the January inflation –which is the most legally and administratively sound and austere methodology from the fiscal point of view– and use that greater fiscal space to provide for a special increase to the pensions that were obtained with the 30 years of contributions and by the general regime. It is a very good sign to recognize those who retired with full contributions.

The change in indexing rule is not the tool to overcome the accumulated problems of the pension system. The only thing it will achieve is to stop the process of real deterioration and avoid that, when price stability returns, the increase in pension expenditure destabilizes the public finances. In any case, it is necessary to be very careful in its design. On the one hand, do not impose rules that are legally inconsistent and administratively very difficult to apply. On the other hand, be honest about the fact that a strong loss of real value on pensions is being frozen and assume this as an opportunity to restore the pensions of the people who made the effort to contribute.

These urgent measures will facilitate progress towards a comprehensive reorganization of the system. It is necessary to tend towards the unification of pension rules so that in the future all people should retire under the same conditions within a framework of long-term financial sustainability. This is one of the greatest challenges posed by the May Agreement.


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