The interdisciplinary commission to assess the state of the Ecuadorian Social Security Institute (IESS) and prepare a bill aimed at the pension system continues its work and has requested a delay until July for the presentation of the bill. Augusto de la Torre, who chairs it, explains that they do not want to make parametric changes in age or contributions, but will try to make a reform that will allow the pension fund and contributions to be sustainable. De la Torre explains what are the main issues of the comprehensive proposal that the Commission will present to President Guillermo Lasso and society for analysis.

The last time the retirement age in Ecuador was changed was 22 years ago and it is now back up for debate

What will happen to the work of the Interinstitutional Commission after the death cross? Are they still working, has the process stopped?

What we did was to send a letter to the President of the Republic, Guillermo Lasso, in which we explained that we needed more time to achieve results. We asked him to give us another month if there were no problems. The president answered us positively. The report was supposed to be submitted in May, and now we will submit it in July. My personal plan is to do the hard work with the data in these three weeks and later present it to the president and also to society: make presentations in Quito, Guayaquil and Cuenca with academics and the media.

But what about those reports? Well, there’s still a little time left.

The commission will submit a written report, a draft law. I cannot predict what will happen, but the President may listen to it and consider it an urgent matter and send the reform by decree, but this must be consulted with the Court. The president did not commit to anything. He wants to see and digest the proposal. However, this proposal is not explained in a short topic, there are many complexities. The idea is to give an opportunity to the president himself, to the people from IESS, to give their opinion, to ask questions, for society to discuss it. The president could also leave it to the next government to deal with.

What were the most difficult questions you had to face?

This was the data that was needed to make the calculations or actuarial tests, to present them to the IESS experts so that they could compare them with what they could do with their own projections. It is a pure and difficult issue of data that requires careful work, especially those concerning the reform of the Disability, Old Age and Death Fund (IVM).

‘Doing nothing is equivalent to killing the pension system. We have to carry out the reform now, this year or next year, we still have time’: Augusto de la Torre

Does anyone know anything about pensions?

There is a huge actuarial deficit that is growing faster than the 40% that the government provides. And that 40% is growing because, as they say, the states will not be able to fulfill that 40% in the future. What is clearly visible is that there is an explosive trajectory, it has an unsustainable fiscal burden and a deficit that is so great that the treasury cannot cover it. What the government gives for pensions is the second largest subsidy after fuel. He gives IESS about 2,000 million dollars, but there is also a subsidy from Isspol, from Issfa, he also has to pay for healthcare. If this contribution were stable, it would be easier to manage. But it grows year after year, even faster than GDP.

Do you have any suggestions planned for this issue?

We make projections so that we do not exceed the minimum retirement age, which is a sensitive issue. We also do not want to cap the contribution rate. An increase in the IESS contribution rate could be proposed, but this is hardly feasible for the self-employed and companies. In that sense, if you don’t touch age or contributions, other changes would have to be made. In this sense, there are a number of possible changes, in order to reduce the deficit and make the contribution sustainable for the treasury and bearable for society. For the next three weeks we will concentrate on that: seeing what parametric changes can be made. It is important to understand that in Ecuador this problem cannot be hidden: either there are dollars to pay pensions or there is not. In other countries, such as Argentina, inflation is diluting pensions. On the other hand, in Ecuador, since it is dollarized, inflation does not occur. Therefore, if Ecuador fails to close the deficits through reform, it will either have to stop paying pensions or it will have to get out of dollarization. This will not happen tomorrow, but in three or four years.

You used to talk about two years, and now you talk about three or four, why the change?

We update the cash flows. One thing that happened that we didn’t anticipate when we made the diagnosis was that it was thought that the population associated with IESS would not recover quickly after COVID. We thought the connection wouldn’t recover that quickly, but people reconnected faster. This means that the situation is better for the next two years. However, the structural problem still exists.

More than 77,000 new associates were registered at IESS between April 2022 and April 2023.

The division of pension and health insurance and the multi-level system were also discussed. Does this still stand?

Of course. We have a comprehensive proposal: the Commission will propose to keep the pension for life, but with changes that will fix the IVM. However, this is not the only proposal, because changes in the institutional system are proposed, such as the separation of health and pension management so that they are in the hands of more specialized people, more focused on each area. In addition, we have a proposal on acquired rights that is being refined more and more, and another one to supplement the system of savings plans. The good news is that we are more aware that there is already an old age savings ecosystem in Ecuador, which exists but is not visible.

What is an ecosystem?

Members already have a savings fund for old age, a fund for the unemployed, which is part of IESS, but has become an important savings fund. In addition to his pension, the Ecuadorian receives an unemployment fund that has his first and last name. There is also a fund for the unemployed, to work better, because it turned out that it worked during the pandemic, but not so effectively. In addition, there are pension savings funds in the private sector that are managed specifically according to certain rules, such as the fund for teachers at the Central University, Espol and the Catholic University. The idea is to propose the strengthening of these savings funds, to better organize this ecosystem. It is true that with demographic changes, they will have to plan for old age with a savings fund. We can build on these foundations.