Uruguay approves a pension reform that raises the retirement age from 60 to 65 years

A demonstrator during the workers' protests against the pension reform, this Tuesday in Montevideo. Federico Gutierrez (EFE)

The Uruguayan pension system changes its rules to face the demographic and financial challenges that threaten it.

Under this premise, Parliament approved this Thursday a pension reform that increases the minimum retirement age from 60 to 65, with an eye on containing public spending on pensions.

The center-right government bloc, promoter of this initiative, ensures that the reform will contribute to the economic sustainability of the retirement system and will preserve its level of coverage, which reaches 95% of those over 65 years of age.

From the opposition, the Broad Front (centre-left) did not support the bill because it maintains that the changes introduced will harm the majority of workers.

The unions agree with this criticism of the reform, which is also rejected by 54% of Uruguayans,

"No one can deny that this reform is absolutely necessary," says representative Pedro Jerdonian of the ruling National Party.

The legislator explained to EL PAÍS that the demographic trend registered in Uruguay (3.4 million inhabitants) puts increasing pressure on the "intergenerational distribution" regime, a basic pillar of its pension system.

With an aging population, low birth rates, and a life expectancy of around 80 years, the country will have fewer and fewer active workers relative to the number of retirees.

Government estimates indicate that there are currently three Uruguayans of working age for every retiree, when in 1970 that ratio was 6 to 1. "(Pension) spending is above 10% of GDP and there is a growing deficit, which due to the demographic trend it will intensify”, added the legislator.

Among the most relevant modifications, the reform progressively raises the minimum retirement age from the current 60 years to 65 years, always with 30 years of retirement contributions.

However, it contemplates the possibility of retiring at age 63, in the case of having contributed 38. Likewise, the calculation of the basic retirement salary will take into account the best 20 years worked, compared to the average of the last ten years or the best 20 that are considered in the current regime.

This law, Jerdonian stresses, will allow retirees to continue working in addition to collecting their pension, something that is not possible in the current legal system.

And he also highlights the introduction of a solidarity supplement of up to 14,000 Uruguayan pesos (360 dollars), destined for the lowest pensions.

“It is very important to advance in terms of equity”, he emphasizes.

From the opposition, the Broad Front has insisted that a reform is necessary, but not the one that has been approved in Parliament.

"The retirement age is indiscriminately increased for all activities," the Frente Amplista deputy Sebastián Valdomir told EL PAÍS.

The law contemplates the particular situation of rural and construction workers, he points out, but leaves out many other especially demanding sectors: domestic service, the refrigeration or metallurgical industry, passenger or cargo transportation.

“These people reach 60 years of age very physically affected and are going to have much more difficulties retiring at 65 ″, he says.

Another of the questions, Valdomir points out, is the financing of the pension system.

According to the deputy, the reform seeks to sustain itself only by increasing the working and productive life of the population.

“No other funding source is incorporated,” he says.

In this sense, for the legislator and his political force, the tax exemptions that benefit certain sectors of the economy could have been reviewed or considered that transnational companies allocate a part of their profits to the social security of Uruguayans.

The Frente Amplistas also criticize the obligation established by this law to join and contribute to the AFAPs – private individual savings administrators – which until now only affected a segment of the population with a certain income.

With this law,

The new workers will contribute 10% of their salary to the state-run Banco de Previsión Social and 5% to the AFAPs, created in the previous retirement reform of 1995, when the current mixed pension system was established.

This inclusion, they affirm, has not had the necessary dialogue and agreements.

Trials of this nature were also heard in the vicinity of Parliament, where a massive act against the pension reform took place last Tuesday, at the end of a 24-hour general strike.

From the PIT CNT workers' union, they stated that the new law proposes a "hidden fiscal adjustment" because it seeks the financial sustainability of the system "cutting rights."

“With this reform, the workers lose, the State loses, and social security loses.

The only ones that win are the AFAP”, said Marcelo Abdala, president of the trade union.

But criticism from the opposition and the trade union movement does not appear to have made a dent in the ruling coalition, busy as it has been resolving its own disagreements over certain aspects of the project.

With marches and counter-marches, in the final stretch of his treatment, modifications concerning, for example, the minimum retirement age or the calculation of the basic retirement salary were incorporated.

These changes, made at the request of the partners Partido Colorado and Cabildo Abierto, disrupted the original project sent by the Executive Branch to Parliament in October 2022. However, its authors assure, the reform will maintain its objective that spending on pensions remain at around 10% of GDP.

President Luis Lacalle Pou himself, a member of the National Party, acknowledged to the media that the original content of his proposal had been diluted after the concessions made to his partners.

“We had a liter of milk, it kept pouring water, water, water, but it's still milk.

If it were water, we would no longer promote the reform, ”he sentenced.

The presidential metaphor leaves no room for doubt.

Sooner rather than later, Uruguayan society will have to discuss its pension system again.

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