The 14 reform recommendations for pensions approved by the Committee of Experts

Of the 15 members of the CESS plenary session, 10 voted in favor of the report and five voted against. In favor were the nine representatives of the ruling party and Elvira Domínguez, delegated by the business chambers. They voted against José Luis Baumgartner, Ernesto Murro and Jimena Pardo, representatives of the Broad Front; Hugo Bai, delegate of the PIT-CNT and Gabriel Regalado, representative of the National Organization of Retirees and Pensioners (Onajpu).

As reported by the CESS in a release, the report of recommendations sIt will be presented in the next few days to the Presidency of the General Assembly and the Assistant Secretary of the Presidency.

“With this presentation, the CESS fulfills its legal mandate and concludes its work. The next steps towards reform are: the drafting of a bill by the Executive Power and the subsequent debate and parliamentary process“, Explain.

The commission also approved a motion regarding their work process in which they state: “The work carried out has made it possible to systematize a set of information and studies in order to consider and evaluate policy alternatives that, due to their entity and characteristics, will contribute in the next stages of the necessary reform process and the relevance of the pension issue in Uruguayan society”.

The CESS began to work in November of last year and delivered in March the first document, a system diagnostic report. The second stage began in April, which should have ended on June 22, but this period was extended by 45 days, at the request of the ruling party, till August 6th.

Arrival of the date, it was extended again for 45 more days, to this Monday, September 20, so that government representatives could work on this base document. After that period an extension was requested again – the third one – until October 31.

The commission’s experts met in a 80 audiences with about 280 people from different civil society organizations, and attended more than 30 academic activities in which at least 84 national and international specialists participated.

Social Security Bank (BPS)

The representatives of the ruling party in the CESS presented on October 5 to the full committee a base document of reform recommendations that was the main input for the final document.

“It was also taken into consideration the contribution presented by the PIT-CNT as input for the process of discussion of the reform and the document with proposals that they presented in the parliamentary discussion of the last Accountability. The exchanges were also taken into account during the social dialogue process carried out from November 2020 to the present, ”the statement added.

What are the experts’ recommendations?

1. It is recommended establish a uniform or equal regime. The main recommendation in this regard is that all new workers who enter the labor market, whatever the sector of activity in which they work, are incorporated with the same rules (mixed regime).

2. The recommended parametric changes apply to all regimes, regardless of the managing entity. The recommended changes in terms of length of working life, minimum contribution time, fictional calculations for care -both those in force and those proposed- and the formula for calculating benefits, would apply to all schemes.

3. Recommended extension of working life through incentives incorporated into the formula for calculating benefits and changing the minimum retirement age in all schemes. It is proposed to raise it, at the rate of one year per generation. There are two options: start the process from people born in 1967 or 1971, which would reach the age of 65 years for those born in 1971 or 1975, respectively. The option for one scenario or another implies different dynamics of containment and reversal of the upward trajectory of the level of public pension spending.

4. The benefits of pillar 1 in charge of the BPS and other public pension entities are settled from a reference salary (salary or basic retirement or retirement assets). In current regulations it is calculated on the basis of the last salary, the average of the last three, five or ten years of contribution or the twenty or thirty best years. It is recommended, from the effective date of the new rules, to determine it for all schemes based on the 300 best months of contribution, updated by Average Salary Index.

5. It is recommended to incorporate into the system architecture a guaranteed minimum income procedure whereby retirement and pension allocations are supplemented via the allocation of resources from a fiscal source. This supplement varies depending on the benefits obtained by those who retire: those who have had more discontinuous work histories and with lower salaries, would receive a greater contribution, as a result of the tax effort of society.

6. The transition procedure Recommended applies the rule of proportionality: it recognizes the rights in the process of acquisition, between the time contributed in the regime that is replaced and that contributed in the regime that is proposed, with a range of between 5 and 10 years for the start of the application of the new rules.

7. It is recommended to limit the mandatory retirements in military retirement service to strictly military personnel and with age requirements greater than those approved in the 2018 reform. In the other parameters, it is recommended to apply the parameters of the general regime to these officials, in accordance with the indicated convergence rules.

8. Once the convergence and transition processes are completed, all Uruguayans will have a pension scheme designed on the basis of the principle of equality. Progressively, the incidence of the old rules will decrease and the incidence of the new ones will increase. It is a particularly slow transition procedure, which could require adjustments in certain cases (for example, Caja de Profesionales) or if decision-making is delayed.

9. Notwithstanding the above, regarding the gradual unification of parameters, the existence of activities of such a nature that may require differential treatments by way of exception, as has been the tradition, for example, through service bonuses for certain activities that have been understood to justify it. This requires a solid foundation and a proportional relationship between the foundation and the differential treatment. and its corresponding financing.

10. In order to get the best out of longer lives, a set of measures is recommended that enable people, according to their preferences, to be able to combine work and retirement, either through a redefinition of partial retirement or by enabling the pool of work and retirement

11. Regarding non-contributory pensions no modifications are proposed.

12. A set of modifications is recommended to improve the efficiency in the administration of the funds of the individual savings pillar. On the one hand, it is proposed to consider design modifications to contain and reduce administration fees and stimulate market competition and, on the other hand, the incorporation of new investment options that promote better returns is recommended.

13. There is sufficient evidence – collected in the Diagnostic Report – that it is necessary that there be an entity that exercises the superintendency of the entire system, which is why the creation of a regulating unit, based on the independence criteria applicable to this type of entity and within the current constitutional framework.

14. The reform that is recommended will have effects in the medium and long term. During the current and next administration the effects will be null and barely perceptible, respectively. It is the consequence of a transition that respects acquired rights and fully recognizes rights in the process of acquisition. Regarding the trajectory of the level of public pension spending, its upward trend is contained and reversed, in accordance with the objective of not transferring more financing demands to the next generations.