Elections in Uruguay: what is this pension reform that, according to them, would bring Uruguayan finances under control?

This Sunday, 2.7 million Uruguayan voters will be able to elect the next president, but the focus isn’t on the candidates but in the plebiscite to reform the Constitution and change the social security system.

The broad change started from the left and involves rejection by the majority of the political spectrum, but if they add one more vote than 50% it will be approved. Critics estimate it would generate a loss of $1,037 million and bring the pension system’s deficit to GDP. He added criticism from both former president Pepe Mujica and current Luis Lacalle Pou, who cannot be re-elected despite having great support.

Four days before the elections and in the midst of a gray presidential election campaign, this plebiscite monopolizes the news, coffee shop talks and loudspeakers in the streets. Even though voting intentions have declined, the left’s argument about rising wages is more appealing than the long explanation change is lacking and harmful in the long termand hence the fear of analysts.

In Uruguay, as in the region, in the mid-1990s, mixed pension systems emerged: state and private -optional- distribution, with Administrators of Pension Savings Funds (AFPS), similar to Argentina’s AFJP but with less commissions and stable operation.

However, The general system began to be lacking and the Frente Amplio made a reform in 2008even if it did not touch the retirement age which remained at 60. Last year, through law 20.130, Congress approved the proposal sent by Lacalle Pou which raised the minimum retirement age for all those born from 1977 onwards to a scale of 60 to 65 years.

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This has generated discontent and sectors of the left, in particular the trade union center PIT-CNT and the Communist Party, members of the Frente Amplio, have collected signatures to reach the plebiscite which, if approved this Sunday, requires: nationalization of the pension system, transfer of the 22 billion dollars from the AFAPS to a trust for two years and then to the State, and the equalization of the minimum pension to the minimum wage.

«Starting from the discontent with the 2023 reform, this plebiscite incorporates the discontent of a part of the left with the 1995 reform as if it were a mix between the two things», he underlines Clarion Rodolfo Saldain, lawyer specializing in social security and coordinator of last year’s pension reform for the Government.

“The biggest structural change is the nationalization of the entire system and the confiscation of pension savings, a line very similar to the one adopted in Argentina in 2008. And this has nothing to do with the 2023 reform,” adds Saldain.

Today the minimum pension is around 18,840 Uruguayan pesos ($465) and the minimum wage at 22,268 ($670). But in this case, the tax break-even claim depends on the interpretation of an “error” in the text. In point 6 of the blank “Yes” vote, it says that no pension or pension should be less than the minimum wage, when it should have said pensioner or pensioner.

The fact is that for the collection of the pension by the State or AFAP, plus some of the other funds of the pension system, those who oppose calculate the cost to be $1,037 million, while defenders We are talking about a cost of 460 million dollars.

“If we hadn’t had last year’s reform, the deficit of the provisional system would move towards 4 points of GDP and stabilize at 2 points of product,” observes Saldain.

The majority of political parties spoke out against the approval of the reform. and the Frente Amplio, which is leading in presidential polls with around 44%, has given its voters freedom of action. However, 111 FA economists spoke out against the plebiscite, including Gabriel Oddone, the man who, if Yamandú Orsi wins the run-off, will be the Economy Minister of the future Broad Front government.

At the same time, the reform brings the retirement age back to 60 years and clarifies that it is up to those who have completed 30 years of contributions. “Only half of us who work protected by Social Security reach 60 with 30 years of contributions. We are the ones who had more stable jobs, with better pay. The other half, who are people with lower incomes and especially women, do not put together these years of contributions. One in three people reaches 70 without even collecting the minimum 15 years of contributions that allows them to access a pension, so they could remain without coverage”, warns Jimena Pardo, one of the Frente Broad economists who signed the document against the plebiscite. And he warns that the situation is even worse for those with a low income.

And to clarify the unknowns he also opposes the nationalization of the system. “Today, one million Uruguayan workers have savings accounts managed by AFAP, in which they earn 1,400 million dollars per year and have accumulated 23,000 million dollars. The BPS, in exchange for the money it receives from individual savings accounts, will be forced to pay liabilities greater than those that would have been paid by the current system, which also has a design that grants increasing subsidies to high-income workers, which exacerbates the problem of equity – Pardo details Clarion-. But BPS will receive less money than the amount it will be obligated to future pensioners, which will further increase its current pension deficit.”

Defenders of the project recognize that in 50 years it may be lacking, but that this number of years is enough to think about a sustainable system. However, critics of the system insist that the problem could explode sooner.