In Ecuador right now contributed by members of the Ecuadorian Institute for Social Security (IESS). they pay a monthly percentage of their salary into the pension fund and other funds twelve discounts per year; but they also get the thirteenth and fourth, without any discount, income or social security. However, when they retire will receive fourteen pensions, because pensioners receive monthly pensions and another thirteenth and fourteenth. This scheme could be changed if the legal reform on which the Citizens’ Commission worked for six months is approved, and which, among other things, proposes a discount on tithes.
In this matter, the Commission confirmed that the contribution percentage will not increase nor will the minimum retirement age change, however, Some trade union headquarters have warned that the introduction of new discounts, this time of two tenths, will increase the value of contributions, although the monthly discount remains in the previous figures.
Andrés Hidalgo, who was part of the Interinstitutional Commission, explains that the logic of this proposed change is that when a person retires he receives fourteen pensions per year, but while he is a member he contributes only over twelve salaries per year. According to Hidalgo, this scheme would be “a decision by irresponsible politicians, which must be corrected as soon as possible”. Therefore, if the reform is approved, all current affiliates and those who continue to join the system will have their tithes reduced by a percentage of 11.06%.
For example, if a person has a salary of $450, he must contribute on the fourteenth salary, which is the equivalent of a base salary of $49.77, and on the thirteenth, which is the full salary, also $49.77. Meanwhile, if a person earns $1,000, the contribution for the fourteenth will be $49.77, but for the thirteenth it will be $110.6. In the first case, the affiliate must give $94.54 more per year, and in the case of a person who earns $1000, it would be $160.37.
But what is the reason why we set that percentage of 11.06% for reduction?
This topic deserves a full explanation. The first thing you need to know is that the contribution rates of associates for various insurances (pension, health, occupational risk insurance, peasant insurance, administration) differ depending on whether they are private or public employees. Thus, for example, private employees set aside 9.45% of their salary, and their employer 11.15%, which gives a total of 20.60% for various insurances. So, the private individual contributes 6.64% to pension insurance, and the employer 3.10%, or a total of 9.74% for pensions alone.
In the case of public servants, they allocate 11.45 percent of the salary, and the employer state 11.15 percent, or a total of 22.60 percent. For the pension fund, public workers contribute 8.64 percent, and the state employer 3.10 percent, a total of 11.74 percent.
When Hidalgo was asked why 11.06% was taken into account and not 9.74% or 11.74%, he explained that within the IESS arithmetic other parameters are used and that 20.60% and 22.60% which he receives, 11.06% is allocated by the pension fund. And that’s why this discount percentage is set for calculations. He even clarified that both IESS actuaries and the World Bank’s Prost system, which were used to conduct actuarial work, used that percentage.
In order to know how the suspension will be carried out or whether the employer has to pay a part of the discount, says Hidalgo, it is still necessary to refine the details, in case the reform is approved.
In the meantime, Napoleón Santamaría, executive director of the Corporation for Fiscal Transparency of Ecuador, It is agreed that within the framework of the ideas proposed for the solidity and financial leverage of the pension fund, the number of pensions that the pensioner receives annually has been taken into account. He explains that “there are twelve contributions, and fourteen pensions are received, which does not seem fair”.
However, warns Santamaría, when this rule is to be applied, the discounting of tithes may mean that they are also taken into account as taxable income for income tax purposes. As Santamaría explains, both the Law on the Tax Regime and the IESS Law establish that all benefits or any other income that forms part of the base for social security discounts must be part of the income tax.
To this last question, Hidalgo comments that after a rigorous regulatory analysis, the rule that stipulates that rent is also paid for tithes has not been registered. He explains that the only intention of the reform, at the moment, is that these extraordinary salaries can be contributed to social security.
Among the main points of the Commission’s proposal is the retention of the minimum age of 60 and the increase of years of contribution from 30 to 35. In addition, the number of best years for calculating the amount of the pension is increased from the current number, which is five better salaries to one salary more each year, until the age of 30.
There are other important issues in the proposal:
Source: Eluniverso
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