13 noviembre 2020

High Inflation Keeps on Eroding Pensioners’ Purchasing Power Without Chances of Recovering What Has Been Lost, published in

Pensioners are going to receive increases in their pension benefits below the general rise in prices; that is why their purchasing power lags behind inflation once again, far from the archetypical model of adjustable pension at 85% ratio [85% móvil] that is proclaimed in electoral campaigns.

Article by Julián A. de Diego published in Infobae on November 12, 2020

Letting pensioners down has been the usual practice in the history of the pension system in Argentina, giving increases below inflation rate with fixed amounts, only adjusting minimum pension benefits, creating subsystems without employees’ or employers’ contributions, raising the pensionable age or the age to request employees to retire, and other resources. The macroeconomic analysis reveals that the pension system should be reformed; this disappointing process continues, and the outcome is that thousands of lawsuits are filed seeking payment of the adjustments.

It violates the National Constitution, which ensures adjustable pensions and the most elementary human rights, breaches the legislation and case law currently in force, and in particular goes against the most elementary ethical and moral standards; it is unacceptable that those who administer the State-run pension system speculate about the health, life expectancy and death of pensioners to reduce the budget of the State-run system that we are enduring.

Just to cite a recent example: the “Macri” reform changed the adjustment system; pensioners are still lagging behind inflation by more than 25%; and the pensionable age is set at 70 in case of termination due to retirement in an attempt to put a halt on retirements encouraged at companies.

With the current Administration, the system changed once again and the minimum pension benefit was increased, to the detriment of the other pension categories, based on an allegedly solidarity calculation formula that actually lowers the bar. Please note that entitlements arising out of the calculation of the pension benefits are vested rights protected under Article 14bis of the National Constitution.

According to the Ministry of Finance, this new increase will take into account the variation in formal salaries that have been lagging behind inflation during the Pandemic, based on RIPTE [Average taxable wages of full-time employees] or average compensation subject to employees’ and employers’ contributions (private and State), and the year-to-year evolution of internal revenue every six months.

There are no precedents for these parameters under comparative law because they both depend on market conditions and the efficacy of the tax collection agencies, which decided to suspend any tax lien foreclosures against debtors for some time, among other actions. 

In turn, in coordination with the Emergency Aid Program for Employment and Production, employers’ contributions have been forgiven or deadlines have been extended as a palliative measure to deal with the crisis and the mandatory preventative social quarantine.

We have now entered the phase of Mandatory Preventative Social Distancing, in a context where the Covid-19 Pandemic still continues and there is no preventative vaccine available or curative medicine for the infected.

It is in September when the second increase of the year should be given by application of the abovementioned calculation formula or, alternatively, based on the variation in ANSeS accrued revenue in the last twelve months with a 3% increase divided by the number of social security recipients. The agency will choose between these two models and apply the one with the lowest cost. 

In real terms the results will show if the criticism is well-founded, and if these mechanisms confirm again that pension benefits are not keeping up with inflation and lagging behind.

Data from INDEC [National Institute of Statistics and Census] reveal that as at September in the last twelve months the difference between inflation rate and pay rises is at least 8%.

Based on this new criterion, which was used in the past, pension benefits will not be increased according to inflation rate but based on the average pay rise and the amount of revenue. Government agencies say that this kind of adjustment is much more consistent with the crisis and the economic situation Argentina is undergoing. The truth is that pension benefits are living wages, and must allow pensioners to afford basic necessities; the market basket is worth ARS 55,000 (for two people), i.e. double the minimum pension benefit, which is earned by more than 70% pensioners.  

Another issue is the National Budget 2021, whose starting point is that pension benefits will increase 32.2%, i.e. 11.9% in March and 18.2% in September, a higher increase as compared to the formula that the previous Administration disabled. It is worth mentioning that these are just reference values because in each six-month period the abovementioned formulas must be applied.

The main issue for the State-run system is that it has, and will continue to have, the highest level of tax evasion -around 50%-, which also affects the chances of getting ordinary pension because when people turn 65 (pensionable age) many participants do not have 30 years of service with social security contributions.

In addition, the registered wages earned in the last ten years immediately before retirement are the wages that are taken to calculate the Compensatory Pension [Prestación Compensatoria, an earnings-related compensation benefit] or Additional Pension Benefit [Prestación Adicional por Permanencia, a pension for individuals who are eligible to receive a Basic Pension and who chose to remain in the pay-as-you-go system after the new system was established], which have the lowest number of years of service to be computed, so in many cases the calculation basis gets reduced until reaching minimum pension. 

In other words, once and again pensioners will be given increases below inflation rate, so their purchasing power is adversely affected, far from the archetypical model of adjustable pension at 85% ratio [85% móvil] that is proclaimed during electoral campaigns but then is not realized when the new Administration takes office, so pensioners are systematically let down, with contradictory statements and declamatory speeches and a narrative that is completely exposed when pensioners must afford basic necessities with their pension or retirement benefits.

Por Julián A. de Diego
Por Julián A. de Diego

Fundador y Titular del estudio “de Diego & Asociados”. Abogado, Doctor en Ciencias Jurídicas.

A %d blogueros les gusta esto: