Social Movement Coalition Rejects Government's Pension Reform as 'Impractical, Insufficient, and Irresponsible'

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Protester in San Salvador holds sign that reads "¡Fuera AFP!" ("Out with AFP!). AFP: Private Pension Funds Administration. Photo credit: CISPES

In an overnight session on December 20, 2022, the Legislative Assembly, controlled by President Bukele’s New Ideas party, approved three new laws that will change El Salvador’s pension system. Although the new laws fulfill a promise by the Bukele administration to reform El Salvador’s pension system–a broken system that has been bled dry by neoliberal restructuring over the last several decades–social movement organizations have roundly rejected the reforms as “impractical, insufficient, and irresponsible.”

The fight for equitable pensions to ensure a dignified retirement has been a pillar in El Salvador’s social movement struggle for economic justice for decades. In 1998, the pension system was partially privatized during the US-backed neoliberal reforms that swept through the country under successive right-wing administrations. The new system became bifurcated, putting newly enrolled pension contributors into privately administered, for-profit plans (called AFPs, pension fund administrators), while the public plan–which contained the greatest number of pension receivers–continued to pay out from the rapidly shrinking public fund. The result: private administrators of the new plan saw their profits balloon while the government went into debt (to those same private companies).

In the years following, the Union Alliance for Integral Pension System Reform, a broad labor coalition representing workers from various sectors, pushed back, advocating for public control of the pension system. However, they were fiercely opposed by business alliances and right-wing government officials who pushed for even greater privatization. For more detail on this historic struggle and its various phases, see the CISPES post here. In a nutshell, “The crisis facing the pension system is unfortunately the typical result of neoliberal economic policies; public institutions are starved of funding, and then subsequent calls are made for further privatizations in order to rescue them.”

In this context, social movement organizations have made a central demand of the Bukele administration’s promise to amend the system equitably to “guarantee a decent pension for all Salvadorans” as he pledged to do “within 30 days” more than a year ago. The reforms as legislated in the three new laws, however, do none of that, social movements say, and instead will continue to further enrich the “same people as always.”

In a statement issued on December 21, the social movement coalition Bloque de Resistencia y Rebeldía Popular (Popular Resistance and Rebellion Bloc, BRP) detailed why they reject the reforms as yet another concession to the wealthy at the expense of the poor:

“This Government bill to reform the pension law is purely cosmetic; it does not address the structural problems and is more of the same that the right-wing elites have given to the working class.

Bukele's project seeks to confuse the population with false promises and maintains the lucrative private business of the AFPs. With this reform, next year they will earn $2 million dollars more, since the commission they charge for administering the funds will increase  from 0.9% to 1%.

Insurance companies will also keep profiting, as they will continue to charge 1% commission for contributions to death and disability coverage. And they will also be awarded contracts from the Salvadoran Pension Institute with money from the solidarity account of workers who contribute [to pension funds]. In other words, the business continues.

The law does not address the three problems of the pension system, which are: low coverage; meager pensions; and the financial burden that private administration (AFPs) makes on the State.

The new law does not include the informal sector, ie, coverage will not increase. In El Salvador, out of every 100 people in the PEA [economically active population] only 25% contribute. This will remain the same or worse, given the growing unemployment under this regime.

Non-contributory pensions will not increase either, nor will the number of people receiving them. These pensions were created by previous governments.

Most pensions will continue to be low, since from the one percentage-point increase in employers’ contributions, a part will go to the AFPs. And what will go to people's individual accounts will only grow from 8.10% to 9%. On average, individual accounts will not even grow by $80 a year. An irrelevant figure.

Since there is no change in the way pensions are calculated (ie, an accrued fund of 250 months), and since salaries are very low, what a person can accumulate in his account is not enough for decent pensions. A total of 95% of pensions will be around the minimum.

The State will continue to go into debt to pay pensions to 88,000 ISSS [Salvadoran Social Security Institute] and INPEP [National Institute of Public Employee Pensions] retirees and to give supplements to those who "voluntarily" transferred to the AFPs. These payments are around $700 million per year.

Part of this money will come out of the solidarity account of the individuals in the AFP and another part will be obtained by the State through the sale of Pension Obligation Certificates (COP, securities) that the AFP will compulsorily buy with the funds in the individual accounts, according to Article 9 of the creation of the COP.

The solidarity account will also be used to pay any increase in the minimum pension. This account, which is used to pay pensions to those who live more than 20 years after retirement, may soon go bankrupt.”

 

What does the social movement coalition propose instead?

“The only solution is to: 

1. Nationalize the pension system, ie, eliminate the private benefit.
2. Create a solidarity system.
3. Modify the way pensions are calculated (60% of the average salary of the last three years).
4. Improve salaries.
5. Impose high direct taxes on the rich, so that the State stops going into debt and fulfills its pension obligations.

 

BRP Proposal: Create a public pension system.

In August 2022, the BRP launched a national rescue plan, and within that plan is a proposal that addresses the pension problem in a comprehensive and structural manner. This proposal includes the following:

A) Approve the project of the National Pension System for workers in the private, public and municipal sectors, as well as for people over 70 years of age presented to the Legislative Assembly in October 2019 by a group of popular organizations, many of them belonging to the BRP, to create a public system where all people who currently pay into to the AFP, INPEP and ISSS can contribute.

B) This system would be administered by a public entity and would establish lifetime pensions, defined benefits, a solidarity pillar and a non-contributory pillar.

C) The employer's contribution would be 8.75% and would include payment during maternity and disability periods, with a commission of 0.5% from the administrative entity.

D) The replacement rate of the solidarity pension would be 50% and the non-contributory pension would be granted to all the elderly population that did not contribute.

The BRP reiterates to the revolutionary, democratic and progressive, forces of the country the proposal to create a Broad Front of social and political organizations to fight against the current dictatorial regime to rescue the country from regression and put it on the democratic path of the Peace Accords of 1992." (Translation, CISPES)


 

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