ABC of the Pension Reform in Uruguay: Now Retirements Will Be at 65 Years

Uruguay's pension system faces demographic and financial challenges that make it unsustainable in the long term, the government of President Luis Lacalle Pou explained. For this reason, it was the Executive branch itself that celebrated the approval of a retirement reform by the Congress of that country whose greatest controversy is the increase in the minimum retirement age from 60 to 65 years.

The measure, promoted by the ruling center-right bloc, aims to contain public spending on pensions and ensure the economic sustainability of the pension system. However, the opposition of the Broad Front and the unions criticize the reform, considering that it will harm the majority of workers.

Most Important Points

It should be remembered that the aging of the population is a phenomenon that affects many countries in the world, and Uruguay is part of this large group. As mentioned by the Commission of Social Security Experts, a group in charge of building the text of the reform, the relationship between the number of active workers and the number of retirees has been reversed in recent decades. This jeopardizes the sustainability of the pension system in the long term.

For this reason, the high command of the Uruguayan Government made the decision to propose a series of reforms in this area. In LatinAmerican Post, we will explain some of the most important.

1. Increase in the Retirement Age

As mentioned at the beginning of this article, one of the most outstanding measures of this reform is the raising of the minimum retirement age. It will increase progressively until reaching age 65, as long as they have 30 years of retirement contributions.

Now, the possibility of retiring at 63 years of age is also foreseen in the case of having contributed 38 years. In addition, the way of calculating the basic retirement salary is modified, which will take into account the best 20 years worked instead of the average of the last ten years, which is how the current pension system is measured.

This modification has been criticized by some sectors, which consider it insufficient or that it could have a negative impact on certain groups of the population. For example, there are those who point out that raising the retirement age could harm the most precarious workers, who tend to have more demanding jobs and do not have good social protection.

2. Contribution to the AFAP

According to the Commission of Experts on Social Security, the reform should include a "Principle of equality and convergence rules." In the case of how the contributions will be made, it will be fulfilled through mandatory affiliation to the AFAP (private individual savings administrators).

In accordance with the law that has already been approved, all new workers will have to contribute 5% of their salary to the AFAP, in addition to the 10% that goes to the state-run Banco de Previsión Social.

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3. Solidarity Supplement and the Possibility of Continuing to Work

Another important point is that the new system would open the possibility for retirees to continue working while they collect their pension. In other words, contrary to the current regime, people who appear as retired before state records may continue working if they wish, but not in the sector in which they retired.

This, according to experts, can be beneficial both for retirees who want to continue working and for the economy in general, by maintaining an active and experienced workforce.

Likewise, and under the line of having an income greater than that achieved with the pension, the pension reform will grant a solidarity supplement of up to 14,000 Uruguayan pesos (360 dollars) for the lowest retirements. That is, for people who, although they managed to retire, do not have the necessary resources to lead a dignified life.

What is wanted with this, of course, is to improve equity in the pension system, both economically and socially.

4. Increase in Pension for Widowhood or Disability

The pension reform in Uruguay also seeks to increase the income limits for people who request pensions and who are currently rejected due to small monetary differences.

According to the vice president of the Banco de Previsión (BPS), Daniel Graffigna, if the applicant lives with someone who earns more than $20,500 ($524), for example, it is difficult to be granted a pension. However, with the new reform, people who exceed the established income limit would no longer be ruled out, and the pension would be granted with a discount of 33% of what that person exceeds in income compared to the ceiling required for the benefit.

That is, if the applicant earns $3,000 ($76.76) more than the cap, the benefit they would receive would be reduced by $1,000 ($25.59). This would facilitate access to pensions and reduce the bureaucracy of having to demonstrate expenses for medicines or health expenses to lower the income ceiling.