Report Nº: 80715/05/2019
In the list of topics proposed by the government to be agreed with the political parties, one key point is to give sustainability and equity to the pension system. Though there are several problems, one particularly destabilizing factor is the sustained increase in double coverage in pensions. The government drew up a list of 10 […]
The government drew up a list of 10 points to be agreed upon by the majority of the political parties. It is a decalogue of institutional principles that in serious countries would be obvious to put them under consideration. Discussing on the need to keep fiscal balance, the independence of the Central Bank, promote exports, respect for contracts, modern labor legislation, reduction of tax pressure, a sustainable and equitable pension system, federalism without discretionary treatments, the transparency of statistics and the fulfillment of the debts shows the extreme level of precariousness and degradation suffered by politics in Argentina.
Without minimizing any of the proposed principles, particular attention deserves the one that refers to the pension system. Social security spending in Argentina exceeds 10% of GDP, a level above most other countries, even those with the more aging demographics. The main consequence is that the pension system became the main destabilizing factor of public finances for the federal government and those provinces that did not transfer their systems to the federal level.
In addition to aging, other factors affect sustainability and equity. Very important is the expansion of the double coverage in pensions. According to the Social Security Bulletin in the first half of 2018, it possible to observe the following trend:
These data show the relevance of disaggregating the growth of coverage according to the type of benefit. On the one hand, some retirees access a retirement given that they reach the pension age and comply with the years of contributions. On the other hand, there are survivor pensions that are generated when the couple of a retiree dies. The survivor pension in most cases doubles the coverage because often the surviving couple has their own retirement, either because they contributed or because they got a free retirement thanks to the moratoriums. What is being observed is that people with only one benefit are reducing, while people with a retirement plus a survivor pension increase.
The most visible impact of the moratoriums (free retirements without contributions) was that it universalized access to retirement. Less visible, but no less important, is that the moratoriums now bring the gradual massification of double coverage. People who receive a free retirement add another pension when their partner dies. It must be borne in mind that currently, of the 5.7 million retirees and pensioners, about 3.5 million have a free retirement thanks to the moratoriums. Of these, 800 thousand have already doubled the retirement obtained with the moratoriums and a survivor pension. It should be worrying that there are still 2.7 million people with one benefit received through the moratoriums because they are candidates to obtain double coverage when their partners die.
The issue of double coverage should be addressed from a dual perspective. As has been done in other countries, there is a need to revise survivor pension rules for the future to avoid overlapping benefits. More complex and delicate are the cases of people who already obtained the double benefit. For this segment of the population, which represents more than 20% of current retirees and pensioners, different inflation adjustments schemes could be evaluated. One possibility could be maintaining the general inflation adjustment for the main benefit, but establish a more moderate adjustment for the second benefit.
That public finances do not record as debt the commitments assumed with current and future retirees, does not mean that the obligation does not exist. One of the government’s mistakes is not having published professional actuarial information to clarify this issue and prompt the debate. If it does, it will be demonstrated that the pension promises are by far a much larger and destabilizing force than the debt with the IMF or the Central Bank’s debt (Lelic) both of which generate so many controversies and alarms.