THE PENSIONS SYSTEM DOES NOT NEED ADJUSTMENT BUT ORDERING

Social security in Argentina is not a system. The so-called Argentine Integrated Pension System (SIPA) is conceived as a general system. However, within it, there are special regimes with higher benefits and differential regimes with a lower retirement age. Parallel to the SIPA, and with little coordination, there are 13 provincial funds, 29 municipal funds, 82 professional funds, 2 public bank funds, and complementary funds. In general, the funds that do not belong to the SIPA have more beneficial rules and, within them, there are also special regimes. The sum results in about 240 regimes that pay about 10 million pensions and retirement pensions.

Fragmentation produces scattered and insufficient information, different treatments for people in the same situations, arbitrariness, and massive litigation. Argentina is one of the few countries that has a specialized branch of law and a specific judicial institutionality to deal with pension lawsuits. A very important particularity is that pension benefits are lifetime rights whose updating is protected by the Constitution. Therefore, pension decisions generate financial commitments for the State with a long-term impact.  

Is this disorder financially sustainable? Data to answer this question come from an actuarial study developed by IDESA on the general SIPA regime (i.e., not including special and differential regimes). According to this study, if the current pension rules are maintained, the behavior of pension expenditure would be as follows:

• SIPA pension spending in 2023 would be around 7.2% of GDP.
• In 2035 it would increase to 7.5% of GDP.
• In 2045 it would reach 8.5% of GDP.  

These data show that even if economic growth recovers (the projections assume a cumulative annual growth of 3%), with the current pension rules, pension spending tends to grow, even assuming that the moratoriums are not renewed. This collides with the purpose of building a solvent State to eliminate inflation and promote economic growth. For this reason, changing the trend in pension spending is a strategic issue.

Faced with the growth in pension spending, the tradition has been to apply adjustments. The current government, for example, adjusted pension spending with inflation by 1% of GDP. This is to manipulate the indexing rule so that pensions are updated below inflation. Beyond the social and ethical considerations, lowering pensions’ real value with inflation does not solve the pension deficit. It allows lowering spending in the short term at the cost of increasing future spending when lawsuits impose the corresponding pension updating. 

The solutions are in the pension system. On the one hand, respecting the acquired rights of current retirees. On the other, to adapt the pension rules so that they can be complied with in the future. This is not only decisive to achieve a sound macroeconomy, but also to provide active workers with predictability over what their rights will be when they retire. In other words, not to fall into the temptation of applying adjustments to achieve short-term impacts, but to review the pension rules so that they can be complied with in the future. 

Pension regulation implies getting involved in much more complex issues than the traditional adjustment. Among others, not to continue renewing the moratoriums and instead to improve the Universal Pension for the Elderly (PUAM); to review the pension system for cohabitants; to establish a gradual mechanism so that all special treatments converge to the general rules; to contemplate the automatic and periodic updating of the pensions’ parameters to the demographic dynamics. 

The actuarial study allows to estimate that, with changes of this type, pension expenditure could stabilize at current levels over the next decade. The fact that pension expenditure will not continue to grow while simultaneously improve the system’s equity (equal treatment under equal conditions) is an important collective achievement and a key step towards an orderly and sustainable public sector.