The AFAPs are required by law to take out collective disability and death insurance. At the moment, of the total benefits served by the mixed pension savings system, 51% corresponds to common pensions and 24% to total disability pensionsaccording to the latest data published by the Central Bank (BCU).
In addition, benefits for death while active or enjoying a temporary subsidy absorbed 17%, benefits for the death of retirees 4% and temporary subsidies for partial disability an additional 4%.
The proportion of retirees due to total disability in the AFAPs is substantially higher than that presented by the Banco de Previsión Social. In the BPS, those retired due to old age are 67.7% and due to disability they are 13.9% —approximately 1 for disability every 5 for old age—.
The president of the National Association of AFAP of Uruguay (Anafap), Sebastián Peaguda, told The Observer what the high percentages of disability in the AFAP may be biased. The executive explained that this occurs “due to the simple fact that the system is not yet mature enough to have enough retirees so that the percentage reflects what the general BPS is.”
The number of benefits served by the new system did not reach 78 thousand at the end of last year, while by BPS they are almost 460 thousand. The mixed savings system will be 30 years old in 2025, so its liability numbers are expected to increase dramatically over the course of this decade.
As long as this does not happen on a large scale, the head of Anafap indicated that “what (the new system) does have is people who die or become incapacitated for their task. A person of 20 years or 40 or 60 can be disabled; but the 20 or 40 year old cannot retire”illustrated.
However, he considered that the proportion of disabled people “can become a problem that must be observed in the entire population. How logical is it that the system has one out of every 5 people who retires due to disability?“, he asked himself. The executive considered that although it is not a problem for the AFAPs, it is for the BPS.
For Peaguda, people receiving disability benefit increased a few years ago and only started to go down in the last three or four years.
The incentive provided by the current legal framework
Of a total of some 35,000 retirements that are processed each year, around 15% or more correspond to discharges due to disability, according to data from the Social Security Bank (BPS).
The increase in this type of contributory pension occurred after the Law 18,395 (article 4) of the year 2008which made the conditions of access to retirement benefits more flexible, and in turn, the decree 306/013 that determined a change in how pensions are determined, which represents an incentive for people to opt for that option.
Thus, there was a significant distance between ordinary retirement (with the requirements of 60 years of age and 30 years of work) with a replacement rate of 45%, and retirement due to physical disability, whose replacement rate is 65%. That It generates encouragement for people to seek retirement for this last cause, since their passivity is greater than for the common regime.
During the last administration of the Broad Front (2015-2020), the Ministry of Economy and Finance (MEF) had already noticed a certain anomaly in the functioning of the system after the reform that made access to pensions more flexible in 2008. In Accountability of the year 2017, the MEF warned that between 2007 and 2015 the registrations for disability pensions doubled, going from 1 in 10 of the total to 1 in 5.
“That was for certain incentives that exist to present a retirement cause for disability and not for common cause“, said Peaguada, who admitted that now “there is more control” by the BPS and the BSE. The latter is today the only body that pays the life annuities of those who retire through the AFAP mixed system.
The Commission of Experts on the Social Security Reform (CESS) —which delivered a draft of the reform to the Executive Branch— analyzed the operation of pensions for disability or physical disability in 2021. Some of its members considered that the operation of the current scheme generates an incentive to process the withdrawal of work activity for that reason., since the replacement rate received by the beneficiary is higher than the common regime. The government plans to send the social security reform bill to Parliament in the middle of this year.
