The commission for the reform of the pension system did what politicians usually do not do: it recognized the reality, which in the case of our pension system is serious. In addition, she presented some suggestions for moving the system in the right direction.

Our pension system covers barely 38% of the economically active population (EAP). There are many workers who, since they could have joined, choose not to do so, such as formally independent workers, because they do not value the services of IESS. On the other hand, other workers want to avoid the high costs of formalization or simply cannot afford it. Increasing coverage also requires labor reform.

The commission proposed limiting state subsidies for pensions. We believe that this is the minimum for establishing fairness in the distribution of scarce fiscal resources. Currently, the state is obliged to cover 40% of pensions, regardless of the possibility of covering this amount. The subsidy for pensions is the second largest in the general state budget (PGE) and it is not fair that this privilege is granted to a minority of retired workers, which even threatens the fiscal sustainability of the Ecuadorian state. Of course, IESS does not have enough funds to cover pensions. In 2023, costs are projected to be $5.696 million, while contributions will be only $3.058 million. That is, a deficit of 2.638 million dollars.

Although it would be ideal to abolish it completely, the Commission proposes to limit this subsidy to a threshold of 3% of GDP. In addition, she proposed that this subsidy be distributed evenly to all pensioners, which would benefit those who receive lower pensions to a greater extent.

The commission also proposes to increase the minimum contributions for retirement, limiting the “Creole vitality”, such as those who, with only ten years of contributions, later collect, in some cases, up to a double pension: that of the Ecuadorian system and that of the country where they have worked for decades . It also proposes an increase in the number of years for the average value of the pension. It is currently calculated based on the five best years and suggests a gradual progression to age 25 or 30.

Finally, a hole of freedom opens: the worker will be able to choose a financial person who manages half of his contribution to the Reserve Fund (4.33%). In addition, you can also choose a financial institution that manages the new pillar of voluntary savings on individual accounts.

On the other hand, the Commission is wrong when it proposes the mandatory membership of self-employed workers. When the labor market and the pension system are sufficiently improved, saving for old age will be something attractive that many will do independently. In fact, many of these workers are already doing this.

According to the same Commission’s projections, even if these reforms are implemented, the system will still be in deficit, even if the state and employers pay IESS what they owe. Currently, the contributions of 8 members are needed to finance the pension of 1 retiree, and there are only 5. Therefore, other reforms will be needed in the future. (OR)