The Ecuadorian Social Security Institute (IESS) is choked by a lack of liquidity. The entity has around 3.5 million members and 600,000 pension beneficiaries. However, contributions are not enough to maintain pensions: there is a deficit of at least 2.5 billion dollars, and the payment of 40% of pensions that the state must make by law has not been fully met. IESS closed the year 2023 with accounts in the red and an unprecedented problem, a shortfall in cash that cannot be covered by the Government, which also has problems with resources.

Therefore, according to the execution of the budget of the Ministry of Economy and Finance, on December 27, IESS had a codified budget of 2,217.8 million dollars for contributions for general insurance, professional risk insurance and social insurance of peasants. By that date, $2,073.8 million was due, but only $899.5 million was paid. Therefore, 1,174.3 million dollars corresponding to the year 2023 have not been paid to IESS.

According to Augusto de la Torre, coordinator of the Interinstitutional Commission that was established in the government of Guillermo Lass to find a sustainable solution for the pension fund, IESS is already starting to show problems with cash, which is very worrying. IESS, according to the current law, as an employer must receive contributions from the treasury. Since there were certain delays in the payment of salaries, there was also a delay in the payment of contributions, he explains. However, the largest state contribution amounts to 40% of the pension contribution. In this sense, says De la Torre, there was no full payment and this harms the fund. Therefore, IESS had to be separated from the pension fund.

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He explains that the commission predicted that, if the treasury manages to transfer 40 percent to IESS on time, the shrinking pension fund could last another four years. However, without timely input, the situation becomes urgent. The cash problem will manifest itself sooner, at the end of 2024 or the beginning of 2025, that is, there would be no more funds for the payment of pensions. The state’s lack of liquidity would lead to IESS not being able to pay and falling into a so-called cash deficit.

For De la Torre, it is the first time in Ecuador’s history that IESS and the Ministry of Economy and Finance (MEF) have liquidity problems at the same time. For several years, it happened that the IESS had a surplus of cash, and the MEF needed liquidity, and that is why Social Security invested in bonds. However, there is now a deficit on the IESS and a deficit on the MEF.

Remember that this danger was warned years ago if structural corrective measures are not taken.

One of the ways in which IESS covered this lack of liquidity is to disinvest funds, which is not recommended. However, now you no longer have that option. The pension fund is no longer liquid.

De la Torre also looks at the fate of the reform proposal that several experts managed to implement at the request of former President Lasso. After completing its work, the said commission submitted the reform proposal to Lasso, who in turn promised to submit it to the incoming government of President Daniel Nobo Azín.

What the new government did with that proposal is not yet known. In this sense, he hopes that the Board of Directors, now chaired by Eduardo Peña Hurtado, will carefully consider it and, if applicable, adopt what it deems appropriate. Note that the reform proposal did not only make proposals for sustainability, but sought to make it fairer and more credible.

For now, it is not known whether the Government has a plan to attack the issue of the sustainability of IESS or at least a debt repayment plan.

In the meantime, when De la Torre was asked about the factors that brought IESS to this situation, he explained that it was primarily a demographic structural problem. The population is aging, and there are fewer payers. There is also corruption, non-payment by the state, bad management of hospitals, among others.

According to Henry Llanes, from the National Front for the New IESS, 2023 was not a good year for the social security entity, since it ended up with more problems than it had in 2022. Recall that the former Director General of the IESS, Diego Salgado said that the state’s debt to IESS is over 10,000 million dollars, including health debt and 40% of pensions. This year, the Government of former President Lasso did not pay IESS.

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Thus, the state would stop delivering about 1,250 million dollars by the middle of the year and borrowed about 1,700 million dollars from IESS, he assures.

Furthermore, Llanes believes that there have been serious problems in the area of ​​administrative stability and management that have led to an unprecedented rotation of power in several years.

Another delicate issue is the structural corruption that accounts for $6 billion in health referrals.

On another topic, Llanes says that the bill to reform IESS and Biess, a popular regulatory initiative he implemented, continues its process in the Assembly. Next Tuesday or Wednesday the report will be known for the first discussion. He has favorable criteria, he assures.

The main proposed changes refer to the composition of the Management Board, which would consist of five members: two from the ranks of workers, one from the ranks of pensioners, one from the ranks of employers and one from the Government, who would be appointed by the Ministry of Labour. The appointment of the director will be the responsibility of the Board of Directors, based on merit.

It is proposed that the shares of Banco del Pacífico be transferred to IESS and that Biess be a tier one bank and a shareholder in strategic sectors. Another important issue will be that it will be established that the care of the members’ children will be performed through the Ministry of Health.

For Llanes, these changes can have the effect of improving the sustainability of the IESS.

Decision on control of voluntary members

In May 2023, the IESS Board of Directors passed Resolution 656, trying to stop certain abuses by voluntary members who, with five years until retirement, would significantly increase their contributions in order to get a better pension. It contained certain restrictions trying to prevent artificial increases .

According to PWC, the resolution reflects a preventive measure to preserve the financial stability of the Ecuadorian Social Security Institute and protect the interests of members and retirees, and is in accordance with the resolution of the Constitutional Court of April 2021, in order to avoid an unjustified increase in members’ contributions. There are members who felt offended by this rule and argued that it would be illegal because there should be a change in the law, not just a resolution on the matter.

Membership has increased slightly

According to the latest data from the National Institute of Statistics and Census (INEC) on registered employment and general insurance variation rates, there were 2,247,100 linked private employees and 652,500 linked public employees in September 2023.

Both figures represent a slight increase in affiliates considering that in September 2022 there were 2,215,600 private employees and 638,000 public employees. As a percentage of this increase, it was 2.3% and 1.4%, respectively.