AGAIN REVIEWING PENSIONS?

 

AGAIN REVIEWING PENSIONS?

People age, it's inevitable, and increasingly they also go through periods without work. What will happen to them? Is anyone taking them into account? Could it be that the State considers them disposable?

 

Once again, the Congress, for the umpteenth time, decided to modify Peru's pension systems.

Let's remember that the various previous attempts, which were not few, did not achieve any significant change.

Let's try to analyze the causes:

In a previous article, I explained that:

"The Peruvian pension system has several problems, but the central ones, which clearly place it at the bottom of Latin America, are three:

a) Only very few people access retirement (low coverage)

b) The few who retire receive, on average, very low incomes that are insufficient for a dignified life (insufficient remuneration)

c) They are not self-financing. They require transfers from the State, which, in turn, has insufficient income. (Low sustainability)

Out of an Economically Active Population (EAP) of around 17 million, 3.5 million contribute to the SPP and 1.5 million to the SNP, that is, only 5.0 million contribute, less than 30% of the EAP.

This, which is already very bad because it leaves 70% of the elderly out of any pension system, is not the only issue. Additionally, according to the Statistical Bulletin of the ONP, less than 10% of contributors over 60 years old to the SNP meet the 20 years of contributions necessary to retire."

Let's remember that the history of retirement systems, which is around 150 years old and is in force worldwide, is conceived as deferred compensation. That is, workers and employers "save" while they have the capacity to work, to return that money when old age or incapacity arrives.

THE REAL PROBLEM: HOW WILL PENSIONS BE FINANCED?

The drama, no longer a problem, is when, reviewing reality, we see that no more than 10 or 15% of the active population manages to meet the "savings" requirements. Therefore, the immediate question that arises is, where do we get the money to serve the remaining 85 or 90%?

Seen in this way, the issue of a distribution or capitalization system; common fund or notional accounts; single or multipillar system, etc., all pass to a secondary level. The central problem is how any adopted modality will be financed. Once the financial source is found, we can then choose the most suitable system to adopt.

Various alternatives of all kinds have emerged worldwide, such as seed capital, tax on cell phones, and many others.

The congressional commission proposes that 1% of the VAT be allocated to individual accounts. Many specialists have already agreed that the amount that can be accumulated is laughable and will not cover any needs.

A retirement project that does not include projections of how many people will be served now, in 10, 20, or 30 years in the future; the magnitude of benefits; total cost, and source of resources, does not deserve to be called as such. It's just a useless conversation.

In turn, the State, called upon to solve the problem, says that with less than 15% tax pressure, it has very little money to contribute to this issue, nor does it have enough to address the serious deficiencies in health, education, housing, and others.

Consequently, it is most likely that after long discussions and much publicity, nothing will be resolved; perhaps a law will be passed that will not be applicable due to lack of resources, or a declaratory law will be passed, like so many others, that ultimately solve nothing significant.

THE STATE IS LIQUIDATING SOCIAL SECURITY

As if all these misfortunes were not enough, Congress distorted the capitalization system, designed to cover exclusively retirement, disability, survivor's pension, and burial expenses, to extend it to the coverage of contingent risks. Thus, 7 (yes, seven) withdrawals were approved because "people need them". Nowadays, the SPP has become a capitalization system for multiple uses.

I dare to assume that, in truth, this is a new attempt to reactivate the economy with the money to cover the retirement needs of the population.

That is, savings are earmarked to cover the old age of millions of people to meet the dividend requirements of corporations' year-end balance sheets.

It seems that those billions of soles are not enough for them. They also release the Severance Pay. The virtual unemployment fund, intended to cover any periods of job loss, can now also be spent.

For the business sector, this measure also has an important effect. There is no need to increase wages because the Severance Pay becomes an additional annual salary and provides additional purchasing power to the usual remuneration.

Now, the question is: People age, it's inevitable, and increasingly they also go through periods without work. What will happen to them? Is anyone taking them into account? Could it be that the State considers them disposable?

These are the real questions currently on the table and they do not seem to deserve anyone's attention.

Silvio Dragunsky Genkin

Lima, May 22, 2024

Silviodragunsky.blogspot.com