Government seeks the way to finance the pension fund

Government seeks the way to finance the pension fund

Two of the main scenarios are the increase in the retirement age and the change in the pension calculation formula.

The Social Security Law, approved in 2001, establishes that every five years the increase in the retirement age must be evaluated, based on updated actuarial studies and calculations.

Almost 21 years later, and with six different presidents at the helm, the regulation of that law was never approved, nor has that periodic review of the minimum age to be able to request a pension from the Ecuadorian Social Security Institute (IESS) been complied with.

This February 15, 2022, during an interview with Teleamazonas, the president of the IESS Board of Directors, Francisco Cepeda, announced that several scenarios are being analyzed to give the retirement fund sustainability.

These scenarios include projections and calculations that take into account, in addition to the retirement age; the years of contributions to the IESS; the recalculation of the formula for pensions and the calculation of the State’s contribution to the IESS, which would now be based on a percentage of the Gross Domestic Product (GDP).

According to Cepeda, the reforms are inevitable because, if revenues are not substantially increased, an actuarial deficit of more than $46 billion will accumulate in 30 years. This would make it unfeasible to pay the pensions of today’s active members.

Expenses double income

Each year, contributions of $2.29 billion are received, but expenses reach $4.6 billion, that is, an annual deficit of $2.3 billion is generated.

With 10 years of life expectancy, compared to what was in the 1980s, the IESS reserves, which now reach $5.8 billion, will decrease rapidly in the coming years.

Cepeda recalled that the pension fund was affected by the decision, during the Correa government, to eliminate 40% of the state contribution. This generated a shortfall of $5,000 additional million, which means that those reserves could have doubled if the institution’s resources had not been politically messed with.

Finally, another important factor in the definancing of the pension fund is the fall in the number of affiliates. To date, there are 5.72 members per retiree, and there should be 8 per retiree.

In this sense, the Board of Directors has set itself until the end of February to prepare a draft proposal. This proposal must become a firm version, after dialogue with various sectors, until the end of March.

That agreed document will go to the Executive, and the goal is that it later arrive as a bill in the Assembly.

Cepeda assured that these days the scenario of changing the way of calculating the pension is being analyzed. The current mechanism takes into account the average of the five best years of contribution, but it could be extended to ten or fifteen years.

To put together the main proposals, a series of financial runs are being carried out that, if they give positive results, could mean that other reforms are not required.

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