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ECLAC Studies Effects of Law for More Flexible Access to Retirement Pensions in Uruguay

Commission prepared two studies, thanks to an agreement with the Ministry of Economy and Finance and the Center for Fiscal Studies.

12 December 2017|News

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Photo of older persons
Photo: Solange Souza/UNFPA

The office of the Economic Commission for Latin America and the Caribbean (ECLAC) in Montevideo, Uruguay carried out two studies that analyze the changes introduced in the law for more flexible access to retirement pensions (Law 18.395), promulgated in 2008 in that country, thanks to an agreement with the Uruguayan Ministry of Economy and Finance and the Center for Fiscal Studies (CEF).

This law introduced an important set of measures aimed at enabling more flexible access to social security. These modifications had an impact on diverse aspects of people’s well-being as well as on fiscal accounts. In particular, this law introduced relevant changes based on the low proportion of workers that would have managed to access a pension under the conditions in effect prior to 2008.

The first of the studies done by ECLAC analyzes the effects of these measures on access to social security in the 2009-2015 period, the characteristics of the people who gained access, and fiscal accounts. The second one, which will appear on the Internet shortly, analyzes who will manage to access a pension in the future according to the changes set forth, and quantifies the proportion of workers that will be able to access the different grounds for retirement.

The results indicate that upon establishing more flexible access to pensions, an increase was seen in the number of people who retire each year, above all during the first few years after the law was implemented. Women are the main beneficiaries in terms of access and amounts, reducing the gender gap from 34% in 2009 to 20% in 2015.

With regard to the fiscal cost of the law, the study finds that without it, the accumulated savings during that period would be between $1.639 and $1.917 billion dollars. This last figure represents a 52% savings versus the cost observed in the entire period.

The second study sustains that the legislative modifications should have a significant impact on the proportion of workers that will manage to retire in the future, rising from between 10% and 20% to between approximately 40% and 60% at 60 and 65 years of age. At 70 years of age, the differences lie in the composition and not in the total number of retired persons, increasing from 21% to 46% the proportion that will be able to access a common retirement pension, and therefore higher pension amounts.

The main impact on access generally stems from lowering the number of years of contributions required for an ordinary retirement and from scaling the benefit due to advanced age. Nonetheless, adding the calculation of years of service per child appears to fulfill the goal of reducing the gender gap in access to retirement benefits, the report states. Around 40% of men and women are expected to accumulate the 30 years of contributions required to access the common retirement pension at 60 years of age, it adds.

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