MORATORIUMS GENERATE DOUBLE PENSION BENEFITS

Moratoriums in the pension system were created in 2005 and have been extended until today. They consist of simulating having worked as self-employed to complete the 30 years of contributions and thus retire at the minimum retirement age (60 years for women; 65 for men). The simulation leads to the generation of debt for contributions not paid in, which is paid in installments deducted from the pension benefit. The mechanism is so massive that the national government currently pays 7 million pension benefits, 4 million of which were granted with a moratorium. 

Allowing access to a contributory benefit through a simulation is a rarity that only occurs in Argentina. In well-organized countries, those who reach retirement age without sufficient contributions to access a contributory pension are granted a non-contributory pension. With this logic, in 2016, the Universal Pension for the Elderly (PUAM) was created. But the moratoriums kept being renewed. This overlap between PUAM and moratoria is another Argentine inconsistency with very negative results.   

The main distortion of the moratoriums is that they generate double coverage. This occurs because, being a contributory pension, when the holder dies, it generates a survivor’s pension. Thus, people accumulate their retirement with the pension of their dead partner. According to the Social Security Statistical Bulletin, there are 5.8 million retirees and pensioners in the contributory national pension system:

• 30% collect a single benefit, either retirement or pension, with contributions.
• 50% receive only one benefit, either retirement or pension, with the moratorium.
• The remaining 20% have retirement plus pension, of which 80% obtained double coverage with the moratoriums.  

These data show that the double pension coverage has significant dimensions. It is observed that 1 out of every 5 beneficiaries receives two benefits. Of these, around 80% had access to double coverage thanks to the moratoriums. Some 900 thousand people have double coverage thanks to the moratoriums, of which some 600 thousand accumulate a contributory benefit with a moratorium benefit and another 300 thousand accumulate two benefits with moratoriums. This is clear evidence that the moratoriums are a factor of financial destabilization and high inequity.

The survivor’s pension was born at the beginning of the last century when women had little labor market insertion, so very few had access to their own retirement. Since women generally survive their male spouse, the survivor’s pension was stipulated to support the widow’s standard of living. Not a minor detail is that in the first pension laws, it was established that the surviving spouse only received the pension when he or she did not have his or her own pension. This rule was modified and with the progressive incorporation of women into the labor market, double pension coverage began to be more frequent. With the creation of the moratoriums, as of 2005, when contributory pensions were granted universally and indiscriminately, double coverage became widespread. 

One justification given for the moratoriums is that they make it possible to “buy” contributions to complete what is missing to reach the minimum of 30 years required. This is a correct approach, but the solution is to eliminate the minimum of 30 years of contributions. The rule should be that, when the person reaches retirement age, the initial benefit should be calculated based on the contributions he/she has made, even if they are less than 30 years. If the amount is higher than the PUAM, the person obtains the initial benefit resulting from his contributions; if the amount is lower, he receives the PUAM. In this way, the partial contributions become valuable for retirement. The other restriction that should be eliminated is the prohibition for PUAM beneficiaries to work. With these adjustments, there is no reason to continue extending the moratoriums.

Both, for reasons of financial sustainability and equity, moratoriums are a terrible pension policy. In comparative legislation, the problem of people who reach retirement age with no or few contributions is solved by contemplating a non-contributory benefit. This is easy to incorporate in the Argentine legislation by eliminating the minimum of 30 years of contributions to access retirement and allowing, as it happens with the rest of the retirees, that the beneficiaries of the PUAM can work, if they wish to do so.