Almost a perfect storm. Retirees have long been suffering from continuous erosion at the hands of public enemy number one of the pension sector: eternal inflation. However, although the 211% that made Argentina also the world champion of that calamity, the issue was aggravated by the almost 60% projected for the first quarter of the year, but above all due to the design of the formula for updating retirement benefits in force since 2020.
The race
As inflation accelerated the loss for retirees increased. It is that the modification still in force makes a quarterly update developing an index in which the increase in tax collection and the wage variation index, but in times of high inflation it runs far behind since the lag is usually 6 months in the case of worker income indicators. All of this meant that in the final stretch of the electoral campaign the method of compensating for that loss was with bonuses, which the current administration continued in the face of the failure of its attempt to modify said formula.
With that injection ($55,000), The retirement floor of the ANSES system rises to $160,000, also increasing the percentage that earns the minimum at the national level. It is estimated that more than two-thirds of retirees are receiving this floor, flattening the system in such a way that it becomes similar to what is called “universal income” for the elderly.
Rafael Rofman, economist and researcher of CIPPECputs the magnifying glass on the original defect of the update formula that is not designed for an economy with high inflation. “The 2020 formula was bad by design because it adjusted for variables that were not relevant to economic policy. Purchasing power must be protected because the retiree has what is his or her share and cannot negotiate anything,” he emphasizes.
In his opinion, there is also an additional problem: both the salary and tax variables are “procyclical”, that is, when the economy contracts, the retirement update and when it expands, it raises earnings by its sole effect.
This occurs because in a recession there is more evasion and fewer sales, in addition to the logical drop in the demand for work. Thus, next month, what will be applied is the percentage increase in the RIPTE (the wage index) between last September and December, but the tax part reflects the variation in tax collection in the fourth quarter 2023 vs 2022. A ruin. So, Retirement assets fell in real terms by 39% since the beginning of the current formula, without counting the impact of the first quarter of 2024.
The Red
However, this formula is good for settling accounts with rising inflation. Some ill-considered person, observing that pension spending is more than half of the national budget, could suggest that this is the way to liquefy spending. If it is not, it worked out by chance: in 2022 The pension system absorbed 13% of GDP, an important figure at a global level. By the end of December, it was around 8.5% of GDP, this is the result of retirement erosion.
The system is financed with contributions from workers and companies, but the difference is covered with specially assigned taxes or directly from the Treasury. The ANSES finances only half of the expense with salary contributionsthen the entire check tax and 11% VAT plus a part of the PAIS tax and the tax on cigarettes are added, but there is still 20% of the unfinanced expenditure that the Treasury has to face: approximately 1. 5% of GDP.
A “pay-as-you-go” system that, since it cannot cover its own benefits with its own resources, became a hybrid with those of universal allocation. Therefore, the current tax relief thanks to this liquefaction will become a headache for the Treasury when inflation decreases and the economy finally grows again.
“The current discussion, in essence, should be a minor issue, because the most important thing is to know who has the right to receive a pension and how its initial value is set,” adds Rofman. In Argentina, the present system only works for, at most, 25% of those who are active because not everyone can cover the minimum of 30 years of contributions and then the PUAM (Universal Pension for Older Adults) will expand and migrate little by little towards a universal right.
Rethink issues like the abyss of benefits between certain regimes and the general one, the institution of the death pension or double benefit, among other aspects; They constitute a minefield for debates that do not fit into the short-term political agenda.
Fiscal horizon
The obsession with nipping the black hole of the deficit in the bud snuck into the intention to change the retirement formula. but it was one of the first things that flew from the failed Omnibus Law. However, the trend is undeniable and in all parts of the world retirements were becoming a burden for the Treasury.
The magnitude of the impact may change, but the combination of a lower demographic growth rate (in the Argentine case, a modest 1.2% annually), a precarious nature of work (exacerbated in our system that has almost not generated formal employment for a decade) and the proliferation of differentiated regimes, threaten to steal more resources. In the last decade, Almost 80% of new retirements were based on moratoriums, an unmistakable sign that something is not working. Even if the system is ordered and rationalized, the delay is so great that it will still require resources from the entire society.
In this context, the economist Jorge ColinaPresident of IDESAhighlighted that the Government seeks that the assets of the Sustainability Guarantee Fund (FGS) be transferred to the Treasury, but in his opinion, they should be used to cancel the debt that ANSES has – for a long time – with national retirees due to lawsuits. with a final ruling and with the provincial funds not transferred to the ANSES. Precisely, a particular case is that of provincial retirement systems. With the creation of the AFJP, the ANSES was absorbing the provincial systems, but 13 jurisdictions were left without doing so, including the Province of Buenos Aires.
However, due to the special conditions of these regimes, they constitute a permanent expenditure for public accounts. According to data from the Ministry of Economy, in 2023, the contributions of public employees who work in provinces that transferred their funds were $84 billion. The expenditure on retirement and pensions of former public employees of the provinces who transferred their funds was $364 billion. That is, the deficit generated by the funds transferred to the ANSES amounts to $280,000 million. A “bad business”.
What Colina proposes is similar to what was called “historical reparation” where the FGS is used to cancel a liability of the ANSES, which are the trials with a final sentence of retirees. Said Fund was valued at US$32,658 million as of November of last year, with 68% of national public securities. The temptation for the Treasury is to make a change of ownership and thus lower the stock of debt, but the option of canceling said debt, but in court, is also attractive. “But in this case it would also be appropriate to use the Guarantee and Sustainability Fund to pay a debt that ANSES has accumulated with the provinces with untransferred funds,” recalls the economist. That is why it seems positive that since there are cross debts between the FGS and the Treasury, they are compensated and cancelled. But the current deficit will never be closed because, he warns, “The country has already entered into a logic of aging and what can be achieved most by ordering the system is that the overflow does not grow”he concludes.
All this complex rethinking of the system carried out at a negotiating table that travels at full speed and any delay continues to deepen the true adjustment variable that the Argentine economy has had in recent years: the income of retirees.
