The pension system spends more than it receives from its active contributors. The deficit could exceed 130% of the national GDP in the next 28 years.
While corruption and waste are major problems in the Ecuadorian Social Security Institute (IESS)its greatest impact is felt in the health Fund, through irregularities in the purchase of medicines and in the administration of hospitals.
In the case of pension fund, however, the largest gap in the financing and sustainability in the medium and long term is given because there are fewer and fewer active contributors.
Thus, for example, from May 2021 to January 2022, 244,226 additional suitable jobs were created. However, only one in four of those new formal workers (with income from $425 per month) joined the social Security.
In other words, during the 9 months of Guillermo Lasso’s government, the structural problem of a system of pensions who spends more than he receives.
The deficit continues to grow
2013 was the last year in which contributions ($2,150 million) exceeded the payment of benefits ($2,056 million). From there, the deficit has been growing.
According to Andrea Vinueza, an economist, this is due to several factors, in addition to the precariousness of the labor market, there is also the elimination of the 40% state contribution in the last stage of the Correísta decade, the political use of the funds, and the reduction of the contribution rate pension systemin order to finance the increase in medical care beneficiaries (under 18 years of age, catastrophic illnesses, among others).
“We are in a scenario where we would need more than 5 affiliates for each retiree, but we have 3. Political mismanagement has deepened the effects of the poor labor supply. Every time companies seek to hire young people with the lowest possible wages, and looking for formulas to not affiliate staff to the IESS. The productive structure is not very competitive, and cannot assume the full costs of hiring”, he said.
Measures are needed to combat the deficit
In 2021, the payment of benefits added more than $4,600 million; while the contributions they only reached $2.29 billion, which means a deficit of $2.31 billion.
If measures are not taken to reverse this situation, by 2050 deficits equivalent to 134% of the Gross Domestic Product (GDP), that is, around $134,000 million.
These measures not only include changes in the calculation of the pensions and the retirement age, as announced by the president of the IESS Board of Directors, Francisco Cepeda; but also a labor and investment reform that allows generating more economic activity.
Only if there are more companies, more competition, and more markets for Ecuadorian products, will it be possible to generate jobs with higher salaries and all the legal benefits (including membership to the IESS).
2019 levels not yet reached
Cut to January 31, 2021, the total of active affiliates to social Security it was 3,284,679. This level is still below the 3,352,342 active contributors up to December 31, 2019.
In other words, despite the fact that the economy grew 4% last year, and the current government highlights the economic reactivation, most of the new workers they find formal jobs without all the benefits, or go straight into growing underemployment.
The biggest drop in affiliations to the IESS occurred in the public sector, where it went from 610,260 contributors to 597,746 (around 12,514 fewer affiliates). For its part, in the private sector, especially in commercial and industrial activities, there was a net increase of 70,974 affiliates to social Security.
Voluntary contribution is an option
Although in smaller numbers, the growth of Ecuadorians continues, both inside and outside the country, who give part of their monthly salary as voluntary and independent contributors. More than 18,600 additional people have benefited from these modalities since May 2021.
Carla Borja, 28, explained that she got a job since the middle of last year, after losing it in March 2020. However, her salary of $650 is less than the $800 she earned before the pandemic.
“In the end you have less money for the daily budget. In the best of cases, only a minority can make the effort to pay for the cheapest private health plan, or pay independently or voluntarily to IESS”, he narrowed down. (JS)
