Augusto de la Torre, who chairs the Interdisciplinary Commission for the elaboration of a reform project of the IVM Pension System of the Ecuadorian Social Security Institute (IESS) created on January 10, explains the road map of said Commission and the urgent need to make changes in the parameters and administration of the pension system. He assures that in the face of the current reality of the pension system, doing nothing would be equivalent to letting it collapse. And that all diagnoses agree that the system has an actuarial insolvency problem. The only thing that is not known with certainty is when the actuarial problem, which is long-term, will become a cash problem, that is, immediate.
Has there been progress in the new Commission, can you share initial results with us?
We have already had a good number of meetings and we plan to hold meetings of three types. The first have been internal, whose main purpose is to dialogue with the commissioners to have a minimum understanding of the pension system and possible reforms. We are going to have a meeting with a commission similar to ours but from Uruguay, which has just gone through a similar process. We have asked the Inter-American Development Bank (IDB) to help us by making the contact. Within these internal meetings we have also discussed an excellent study carried out by IESS technicians. A second type of meetings are the specialized ones, in which the most technical members of the group are present to discuss issues of numbers, analyze the data. A third type of meetings, which we have not yet started, are those for consultation with civil society.
Are the members of the Commission technical or what was the criteria that led to their selection?
There were two options. The first was to form a commission with only technical personnel. The advantage in that case would have been that everyone would speak the same language; but the disadvantage, that they would be like in a bubble and would only talk to each other. The other Commission model, which I like more and which is the one that was chosen, was to have more diverse commissioners but with a good technical secretariat. Thus, the commissioners help to channel different visions and opinions. The current members have territorial diversity, professions, ages, gender, ethnic origin. They have given us diverse visions. For example, one of them explained to us how poor people in the territories think about their protection in old age, the importance of remittances, the family nucleus and the development bonus. Another of the commissioners said that for her it was not attractive to join the IESS and have all the benefits: health, pensions and security, reserve, unemployment. It would be a possibility for her to enroll only in pensions, although she has doubts about its viability in the future. Cheers, she’d rather not. Those things are not seen by technicians.
Can we talk about a diagnosis? The Study Table has said that the pension fund could last ten years. Do you also see it that way?
There are several diagnoses that reach different conclusions about the life of the fund, depending on the assumptions used. But all converge on the idea that the system is actuarially insolvent. The difference between one and the other lies in determining how quickly the actuarial problem is going to become a cash problem. Currently the health system already has red-hot cash problems, there are problems in services, delays in payments. The pension is not on the surface, but it is beginning to surface. The pension fund has $5,000 million, an amount that is equivalent to one year of pension payments. It must be established whether or not these funds can be used immediately. In the diagnosis that we made with the World Bank (WB) we were able to determine that more than half is invested in mortgage loans, which cannot be recovered immediately. Another part is in government bonds, but if they wanted to recover liquidity they should sell them at a discount. For this reason, in this study we ventured to say that the fund was two or three years old. In this sense, the reform must be carried out now. If we do it this year or next, we are still on time.
What are the system structure options being considered?
When thinking about the reform, the question we must all ask ourselves is whether we want a different administrative structure from the current one. And if the answer is positive, here comes another question: is it worth it or not to separate the pension system from the health system? Our current structure creates problems for those who, for example, want to join the pension system, but not the health system.
Have you talked about a multipillar structure of the pension system, what does it refer to and could it be applied to the Ecuadorian?
In international experience, what has been learned is that extremes are not good. For example, in Chile there was a system with a single pillar of individual savings, we have a system with a single pillar of distribution. Both are extreme. Other countries such as Costa Rica, Uruguay or the United States have multipillar systems that include savings incentives. In Ecuador we should also have a pillar for care, because the problem of informality is known. How all these systems are managed is another matter. For example, the assistance could be administered by the State, via taxes; the pension system in general, an entity specialized in pensions.
When talking about a pension entity that could be the one that manages, are we opening the door to a possible privatization of the IESS?
No, not even close. If the State builds a highway, but for this it hires a private company to build it, it is not privatization.
It wouldn’t be privatization, but if instead the highway is concessioned and a fee is allowed, it could look like privatization.
It is not a question of privatizing and we must be very careful in what we are going to propose, so that it is not interpreted, because in reality it will not be like that, as a privatization. For me the pension system is public by definition.
Many citizens wonder if it will be necessary to increase years, contributions or change the calculation of pensions. Is it so and what would be the reasons?
If we don’t, the system will not be able to pay pensions in the future and we will pass the bill to young people. Doing nothing is tantamount to letting the system crash. What needs to be done is obviously going to imply reforms to the parameters of the system. The parameters have to be recalibrated because the system we have was created when we had a younger population. When there were more than 10 contributors to the system, but now we only have 5.5 for each retiree. In 2010 there were 200,000 retirees, now we have 500,000 retirees.
Will the parameter change be done as safety measures? shock or would there be an extended period?
All pension reform respects acquired rights, it cannot be a change of shock. If you have a retiree who already receives his pension, that cannot be removed. But the issue is where do you draw the line for the new rules to begin. Typically what I have seen in systems that have changed as a rule is two or three years. If you are six years away from retirement, but you have already contributed 20 years, you must recognize what you have already contributed. The reforms come into effect gradually. Suppose it is decided that Ecuador wants to take into account not the best 5, but the 20 years of salaries. Each year the number of years increases. These changes must be made technically, you have to do the runs to see if they produce the desired effect. The desired effect is to have a financed, financially and fiscally viable, sustainable, equitable, credible pension system that generates the expectation of having a reasonable pension in your old age.
From the workers it is maintained that the problem of the IESS is not that it does not reach the money, but that the State has not complied with its contributions and that there are very large debts. How are you planning the State’s compliance with these debts?
It is true that the debt that the tax authorities have not documented and that is not recognized is part of the problem. It is also true that there have been management errors that may have aggravated the situation. What is not true is that if the debts are recognized and paid, all problems are fixed. In fact, the Commission will surely recommend that the Ministry and the IESS agree on the size of the debt as soon as possible and that there be a payment plan. We need those numbers to be able to incorporate them into our analysis.
How do you see the political viability, being the subject of the IESS so sensitive and with the weakness of the Government?
The political viability of anything in Ecuador is very delicate. I would expect us to realize that doing nothing is tantamount to killing the pension system. So there are two tensions: reforming is politically unfeasible -some people say-, because there is no political agreement; but it is also unfeasible for the system to burst. What the commission is going to do is not binding, but we hope that the proposal will be the result of a technically well-armed and transparent dialogue process, so that it has legitimacy, and there are more groups in society that put pressure on it. to the political system so that they don’t let the system fail.
When do consultations with society begin?
We are still fine-tuning the way to open a space with other sectors that want to participate. We hope to start them in February. We are making a list of groups that we want to invite to join us. We want to consult in Quito, Guayaquil and Cuenca and perhaps in other cities. We are asking for the collaboration of universities.
Will the discussions be open? Will it be possible to see them live or already the results?
The results mainly. You have to find an appropriate balance so that there is frankness, civility and transparency in the conversation. What we have proposed is that consultation meetings follow the Chatham House rules. The idea is that the conversation takes place in a room behind closed doors so that people can speak freely and frankly, but when it is over, the participants can talk to whoever they want, and can describe the topics that were discussed. The only condition is that when speaking it you do not personalize where the different opinions came from. (YO)
Source: Eluniverso
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