The discussion generated by the last pension moratorium voted in Congress made it clear that, in addition to financial emergencies, the other big “bomb” that the next government will receive will be that of a retirement system which all analysts consider collapsed, unfair and fiscally unfeasible.
It was the conclusion expressed by everyone: from the opponents who criticized the moratorium and see it as an injustice towards those who contributed, to the Kirchnerists who voted for it as a short-term solution and celebrated a political victory over “the right” but in the end They recognize the need for structural reform.
One of the most explicit in this regard was the Deputy Daniel Arroyo -former Minister of Social Development-, who after the moratorium admitted before the TV cameras: “A profound change is needed in the retirement system, we cannot live from moratorium to moratorium. Over time there will be fewer contributors, because the young people who work in the little motorcycles today are monotributistas, so other types of contributions must be foreseen and the problem of informality.
And he concluded with a forceful phrase: “The system is exhausted.” This is quite a change of position, if one takes into account that when the agreement with the International Monetary Fund was signed, the then Minister Martín Guzmán He stated that one of the advantages of the “stand by” was that it did not provide for a pension reform.
Now, on the other hand, that definition of Arroyo on the exhaustion of the system that could perfectly have been signed by the opposition deputies who rejected the moratorium and criticized the fiscal cost of almost half a point of GDP.
So, the deputy José Luis Espert He based the need for a reform on the fact that exceptional pensioners are already the majority: “The general scheme represents a quarter, another room are the moratoriums and the rest are special regimes”.
The last moratorium voted in Congress added 800,000 retirees and revealed the unfeasibility of the system in the medium term
Exhausted system, from Argentina to France
The existence of a “pension bomb” leaves, at least, one consolation: unlike what happens in issues such as inflation or the stocks, it is not an Argentine extravagance but rather a crisis that is experienced in almost the entire world. developed world. In fact, these days we have seen images of massive street protests in France, against a reform that raises the retirement age from 62 to 64 years.
In France, the grounds set forth to introduce these changes are not so different from those that can be seen in Argentina: demographic changes, cultural changes, fiscal difficulties.
And in Argentina? The statistics are compelling: today life expectancy is 80 years for women and 76 years for men, while in the 1960s, the expectation was 67 and 61 years respectively. And this positive situation, allowed by the advancement of medicine, implies the challenge of how to sustain retirees who will earn for a much longer period of time than previous generations.
In short, in all countries there is a reduction in the number of contributors to the system. It is a consequence of population agingbut also of technology impact In the labor market. And, in the Argentine case, everything is seen compounded by informality of the economy, which affects more than a third of workers.
Experts estimate that only six out of 10 retirees reach retirement age having completed 30 years of contributions. And the worst has yet to come: “We must warn the monotributistas and self-employed that they will have low retirements, since the retirement contributions of these regimes are negligible. Only categories IV and V of the self-employed pay a contribution equal to or greater than the average salary in a dependency relationship,” he points out. Andrew Falconeone of the main pension lawyers in the Argentine market.
Retirement, the adjustment variable
Of course, in the Argentine case there are, in addition to demographic change, other more urgent motivations: basically, the exhausted treasury coffers. And since retirement and pensions are the item with the greatest weight in public spending -approximately 40% of the total-, it is inevitable that, every time the tax cut is raised, are candidates for adjustment.
Proof of this is that the IMF, in its December review, recommended cutting pension spending by 0.2% and social assistance by 0.6%. And despite the high political cost that this measure implies in an electoral year, until now this cut is being met, via inflationary liquefaction.
The real drop in retirement was one of the variables that allowed the reduction of the fiscal deficit in 2022
The cut -of 0.3 points of GDP- was what allowed last year to have met the goal of lower the fiscal deficit from a level of 3.6% to 2.4%. Among those who had most opposed the moratorium was former minister Guzmán, who understood that adding 800,000 retirees would put the fiscal goal at risk.
Even so, the amount of pensions has fallen in real terms, to such an extent that, according to the Ombudsmanthere are 70% of retirees who earn less than the basic basket estimated for that segment of the population.
A history of liquefactions
How can one explain the fact that, with a system that tends to cost the State more and more, retirees are simultaneously the variable of fiscal adjustment? The answer is simple: what increases on the one hand, is compensated through indexing formulas that do not protect against inflationary erosion.
And it is an issue that does not distinguish political color or ideologies, because to a greater or lesser extent all governments in recent history have done so.
The management of Cristina Kirchnerwhich on the one hand increased spending by adding three million people without sufficient contributions, compensated with a “pro-cyclical” indexing formula – that is, when the economy fell, retirements were made in a greater proportion -.
Then the macrismo, with the “historic repair” of 2016 which recognized the massive judicial claims, also increased the retirement cost. At that time, internal debates were generated in the government: the most “fiscalist” faction -which remained in the minority- argued that pension spending could grow to represent 13% of GDP, a rate that would double the Latin American average and that would exceed their own inventors of the “welfare state” such as France and Great Britainwhich were around 12%.
The way to compensate for this expense was the famous and bumpy reform of December 2017. A Congress under stones voted for an indexing formula that the macrismo presented as progressive, because it adjusted for inflation.
The change in the indexing formula of 2017 generated violent protests in the vicinity of Congress
In fact, what was on the minds of the officials was that inflation would continue to drop, while the economy would grow. In this way, retirements would weigh less each time in terms of tax collection and GDP. However, the devaluation crisis of 2018 ruined the whole plan.
This situation led to the reform promoted in 2020 by Guzmán, which would later be acidly criticized from Kirchnerism. In particular, the definition of the wayward deputy Fernanda Vallejos is remembered – she described it as “that shitty reform that they made us vote for” – and the responsible for the electoral defeat in the legislative
What is certain is that the indexing mechanism returned to the “pro-cyclical” logic, which made pensions remain uncovered in a context of growing inflation. Proof of this is the permanent need to approve extraordinary bonuses to offset the erosion of purchasing power. In this government period, retirements have been the main adjustment variable. The latest fiscal report marks a real drop of 4%.
Waiting for the next formula
And everything indicates that history will repeat itself. The experts in the finances of the pension system take it for granted that in 2024, whoever wins, there will be another indexing formula changein order to offset the impact of the last moratorium.
According to Mediterranean Foundation, in 14 provinces there are already a majority of retirees and pensioners who accessed their benefit through moratoriums. There are three and a half million beneficiaries.
There will be an additional challenge: to correct the injustice towards retirees who have made their contributions in order. The Economist George Hill, director of Idesa, points out that while retirees from the general regime receive an average of $125,000, those from moratoriums receive $120,000. Almost the same, but without having made contributions.
But at this point, the “solution” of liquefaction through inflation is also finding its limits.
The reforms under study foresee the impact of the new labor modalities, with less incidence of dependent employment
“The problem will be for those who seriously want to lower inflation. Because they will have more pensions to pay, thanks to the renewal of the 2023 moratoria, without the liquefaction of the retirements of 2023. Because when inflation drops, the mobility formula makes pensioners recover what they lost,” argues Colina.
And he affirms that manipulating the mobility rule implies “a backfire”, because generate hidden pension debtwhich ends up paying later with retroactive, interest and fees in pension judgments.
Time for structural reform?
Consequently, the chances of a structural reform appear higher than ever. In fact, initiatives are already being studied in the opposition. And it is discounted that the issue will also be among the demands of the IMF.
Among the most mentioned points is the possibility that workers can save to have an individual supplement to state retirement. Experts also suggest that the system allow for “partial retirements”: today a person without contributions and another with 29 years retire with the universal pension, of $41,000. This supposes a disincentive for the contribution of those people who already know that they will not be able to complete 30 years, and that they will wait for a new moratorium.
“The other The PUAM’s defect is that it prohibits work. People who receive the PUAM are not disabled. They are people who receive a universal pension in recognition of having reached retirement age. Like any other retiree, he has the right to continue working,” says Colina.
And then there is, of course, the great taboo: retirement age and replacement rate -that is, the percentage of the salary that will form the retirement-. But it is an issue that, even with the political cost that it implies, is being discussed in the world.
“Since 2010, the European Union has been developing initiatives to extend active working life. We must promote programs for the job retraining of those over 45,” says lawyer Falcone.
At first glance, they seem like debates that, in today’s Argentina, are covered by emergencies. However, they are at the base of the other “bomb” that the new government will have to deactivate.
