The application of mobility due to inflation initially improves wages compared to what would happen under Alberto Fernández’s current mobility law. But If inflation drops and the economy recovers…Javier Milei’s bet: the assets would evolve below what would derive from the current mobility formula (AF)
This is underlined by a report by specialists Marcelo Capello and María Laura Caullo, of the Mediterranean Foundation, for whom “when inflation slows down and GDP improves, the mobility formulas used in the past generate improvements in real assets because in these cases” salaries and income tend to beat inflation.”
For his part, “In terms of public spending it would be read the other way around. Maintenance of the current Mobility Act (AF) At first you would save more in retirement, but in the medium and long term I would spend more. Of course, if the future economic scenario results at some point in an increase in inflation and a decline in GDP, the previous conclusions would be reversed.”
In turn, IDESA (Argentine Institute for Social Development) states that “The most important thing is that the start of the update for inflation stops the liquefaction, but it perpetuates the losses accumulated since 2017.
Retirements in March 2024 (without considering the bonus) they are 23% lower in real terms compared to the 2023 average e 50% less than the 2017 average. “This is the situation where a change in the mobility rule would be applied,” according to IDESA.
Consequentially, For pensioners the best option would be to combine both alternatives: so that the assets do not continue to deteriorate in the future (in this case, until June, the final moment of the combination of the formulas) A monthly adjustment for inflation is advisable from April e continue later due to inflation, wages and economic growth, of both majors.
At the same time, due to the strong setback of recent years, a path to recover what has been lost should be defined from the beginning, so that the loss of recent years is not perpetuated or becomes “permanent”.
According to the Mediterranean Foundation Report:
Pension spending has evolved with an increasing trend between 2004 and 2017, both for the greater number of beneficiaries of the moratoriums and for several years of real capital improvements. In 2015 spending reached 8.9% of GDP, double compared to 2004. However, in 2017 lies one of the peaks of the serieswhere pension payments amounted to 17.7 trillion pesos (9.5% of GDP).
As of 2017, pension spending was falling every year in real terms and almost always compared to national production. (GDP).
The year 2023 ended with a pension expense comparable to that of 2012, equal to 7.7% of GDP. Compared to 2015, spending fell by 11.1% in real terms and reduced by 1.3 points of GDP, going from 8.9% in 2015 to 7.7% last year
If the goal of the mobility formula is to preserve purchasing power of retirements over time, providing certainty to its beneficiaries on the evolution of their purchasing power, It is convenient to use inflation as a mobility rulewith the least possible delay.
If, however, the objective is for pensions to evolve Similar to salaries, Real assets will improve if GDP and productivity grow in the long term, but otherwise decrease.
As of 2018, real pensions have lost purchasing power more frequently, generally coinciding with declines in GDP and accelerations in inflation.
In this recessionary and inflationary context (stagflation), it was common for increases in assets to fail to match rising prices, causing retirees’ real income to decline.
The negative outcomes of mobility (real drop in wages) that occurred in those years can be explained by two reasons: firstly, the variables used in the mobility formula, like salaries and collections, they increased less than inflation, causing real drops in wages, despite the adjustments. Then, the delays with which mobility is applied, updating the assets with data on inflation, salaries or past receipts and values lower than the current ones, have aggravated the deterioration.
On the contrary, When inflation slows and GDP improves, the mobility formulas used in the past generate improvements in real goods, because in these cases salaries and income tend to exceed inflation.
In the inter-annual comparison of the first quarter of 2024, assuming an inflation rate for March 2024 half a point lower than that recorded in February and a salary evolution of 13%, pension mobility would be 118%, given an increase in salaries stable workers of 192% and an interannual inflation of 211%.
SN
Source: Clarin
