Industry watchers bemoan the government's move to nationalise private pensions and reduce the retirement age, Rodrigo Amaral reports
In the long run, workers should be worse off too. The system will be put under pressure immediately as another measure adopted by the government was to reduce the retirement age to 58 years, immediately adding tens of thousands of people to the group of retirement candidates. Unions close to the government have already begun making pressure for hikes in current pensions. The new law estimates that, depending on circumstances, pensions can reach 60% of a “reference wage” defined by the government, while in the private system the maximum was 70% of the average salary of the previous five years. But experts believe the reduced ratio will be not enough to compensate for the extra costs created by the lower retirement age.
Tax and contributions
The government is also imposing higher pension contributions on employers and an extra tax charge on wealthier taxpayers to fill a solidarity fund that is aimed at helping to close the financial gaps. But these measures are set to have deleterious effects on employment and investments, and no actuarial study has been presented by the authorities to show that the ends will eventually meet.
Participants will carry on making contribution in individual accounts, but pensions are not fully calculated according to how much each participant paid in the course of his or her working life. When a worker retires, contributions are added to a common pot, and the value of each pension will be defined according to criteria like the mortality rates among participants.
“There is no relationship between the effort made by participants to contribute to their pension pots during their active working life, and the quality of the pensions they will receive after retirement,” said Ferrufino. “The system is not actuarially neutral.” Furthermore, although the law specifies that Gestora will charge a fee for its services, it is not clear how much it will be. “In the face of the total control of the Executive, participants can find themselves defenceless and lacking any efficient tools to fight for their rights,” warned Guillermo Aponte, a former pension system boss, in a recent study.
