The number of pensioners of the Ecuadorian Institute of Security(IESS) is increasing at an accelerated rate, while the income of the entity isfalling short. The number of retirees began to grow rapidly since 2012 andreached a peak in 2016, when it increased by 11%.
Last year the entity registered 456 048 pensioners. On the other hand, the number of members, who contribute for the payment of these pensions, grew until 2014, but since then it has been reduced and last year it barely grew 2%.
Despite this, the previous year there were 73 189 contributors less than in 2014. This situation pressures the finances of the IESS, but also of the State, which from 2019 will contribute again with 40% of the retirements. If a pensioner earns, for example, USD 1,000 per month, 600 will be covered with income from the IESS and 400 with the state contribution.
Social Security estimated that in 2019 the Treasury must provide USD 1 754 million to cover the pensions of the Disability, Old Age and Death Insurance; Labor Risks and Rural Social Security. But the Treasury does not agree with the figure, informed Finance Minister Richard Martinez.
This Portfolio budgeted a contribution lower than that required by the IESS in the Pro Forma next year, amounting to only USD 1,242 million. Minister Martinez said that his figure is based on a “technical report”. To resolve these differences, both state institutions agreed to set up a technical panel.
The IESS, as established in article 237 of the Social Security Law, is obliged “in all circumstances” to grant the full benefit to its members. During this year, not having sufficient resources for the payment of benefits, the entity planned to take USD 1,669 million from the pension fund.
The concept of this savings fund is to accumulate resources to be able to cover the pensions of future generations. In addition, with the approval of the Labor Justice Law, in April 2015, the Institute did not receive a 40% contribution for three consecutive years.
The Law changed the fixed contribution of the State for pensions and introduced a subsidy that was applied only when the Insurance does not have the resources to fulfill its obligations. All this has accelerated the decapitalization of the pension fund, whose balance fell from USD 9 274 million in December 2015 to USD 8 407 million through July 2017.
If the State does not cover all the necessary contribution in 2019, Social Security will again be forced to cover the gap with your savings. On this, the IESS responded to this Journal that “once the General State Budget is approved by the Assembly and the final value of the State contribution to Social Security is known, it will be possible to better estimate both the sources of resources as their uses and, on that basis, make the technical decisions that correspond to an efficient administration of the resources of the affiliates “.
Affiliations are directly linked to employment behavior; if this decreases or stagnates, the affiliations also. For Rodrigo Ibarra, actuarial expert, the rapid increase in the number of pensioners can also be explained because public and private workers retire when they meet the requirements, due to the uncertainty that exists regarding the future economic situation of the entity.
Another measure that affected this fund, according to the actuary, was the change in the contribution rates of the affiliates. In October 2015 the contribution made by the affiliates to the pension fund was cut and the health contribution was increased.
The contribution for pensions fell from 9.44% to 5.76%, although the rate goes up every year and only in 2021 will be 10.36%. In the midst of this situation, the National Confederation of Retirees asked the Executive on Thursday to review the method of pension increases, since 2015 it is done only based on inflation.
Raúl Ledesma, Minister of Labor, stated that inflation in 2017 was negative, so there is no guarantee that there will be justice for the pensioner if the review only takes into account that variable. He offered to form a commission to analyze the order of this sector.
In the future the problem of the entity can be deepened. Last year, 6.6 members paid a pensioner’s pension and it was not enough. In 2055 only 3.8 contributors will do so because there will be fewer young people to work.
The Treasury must also provide medical care, but in the Pro Forma2019 resources were not included. Martinez said there are still missing reportsfrom the technical teams to define the contribution. (I)