CUBA: Social Security Spending Demands Reform

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Apr 29 1997 (IPS) - The ever greater tendency to increase the State social security budget in Cuba could mean the laws covering these benefits will have to be reformed.

Last year, Cuba spent 1.686 billion pesos (officially on a par with dollars and at 22 per dollar in currency exchanges), in paying 1,354,800 pensioners. Local experts said if the current legislation is maintained the figure will be nearer to 3.5 billion by the year 2010.

The official Communist Party daily Granma said Tuesday the tendency towards growth would be maintained until the year 2025, recognising this process would perhaps demand the implementation of new measures.

“This is not due to a problem of the special period (the official euphemism for the economic crisis which began in 1990), but to the age profile of the Cuban population and its gradual greying,” said Silvia Martinez in her article “Social Security: Age and life as a compass.”

The greying of the Cuban population is due to a combination of falling fertility and mortality rates in recent decades, coupled with increased life expectancy at birth – a process known as demographic transition.

Official sources said that in Cuba around 1.4 million people are aged 60 or over – practically 13 percent of the 11 million islanders.

According to predictions from the National Statistics Office (ONE), there will be 2.1 million people aged 60 and over living in Cuba by the year 2015. This sector of the population will then make up 18.4 percent of the Cuban population.

Local experts said the changes in the demographic structure in Cuba have presented the authorities with the challenge of rethinking their social security policy, at least in the aspects related to funding and the retirement age.

Unlike the predominant systems in Latin America, social security in Cuba is not funded by combined contributions from the employee, the employer and the State.

The funds are formed on the basis of employer contribution only, mostly provided by State companies, with an amount equal to 12 percent of the total salary, plus two percent retained for subsidies.

The direct consequences of the economic crisis of recent years have included the incapacity of a significant number of companies to fulfil their commitments, whereby the state budget has had to make up the shortfall.

The depression, which affected all branches of the economy and provoked a fall in Gross Domestic Product (GDP) of 34.3 percent between 1989 and 1993 did not, however, lead to delays or the non- payment of pensions or social assistance.

Granma assured that the reasons why social security expenditure have remained so high include the increase in pensions paid for partial or total invalidity, and the falling average retirement age.

“For while the average retirement age in Cuba was 63.5 years- old in 1985, the arrival of the special period helped it move closer to the established age limit (of 60),” said Martinez.

The increase in the number of people retiring for ill health, including the use of “inappropriate” medical certificates, has helped push this down further, to 55.

Sources in the Employment and Social Security Ministry recognise that violations of the partial or total invalidity rules have increased due to the crisis, being used as a way of leaving State employment without loosing pension rights.

However, a policy of increasing control over cases of retirement for medical reasons meant that pensions granted for ill health shrank from 37.3 percent of the total in 1995, to 23.7 in 1996.

Granma stressed that on this front alone, the Caribbean country saved more than seven million pesos in the last year, while the application of the principle of only helping those really in need led to another million peso saving.

“The budget for these ends in 1996 was up two percent compared with figures for 1995, however, the average rate of growth in recent years was closer to four percent,” it added.

At the same time, the tendency to retire as soon as the legally established minimum age is reached, seen in the worst years of the crisis, has started to correct itself. According to official data, these cases reduced from 48,024 in 1995 to 34,236 last year.

Ismael Lugo Machado, head of the Department of Social Security Projections, said this tendency was due to the effects of the recovering value of the peso, which makes people think twice before retiring.

The current legislation in Cuba has a minimum retirement age of 60 for men and 55 for women. The average pension is around 94.61 pesos per month.

“A woman arriving at retirement age has a life expectancy of 25.9 years, and a man 19.9, for the average life expectancy of women is 76 and men 72 years,” said Granma.

The official daily said that when a pension is granted in Cuba it generally runs for an average of 20 years, whereby “the burden on spending is due to the accumulation of long term payments and not the new claims.”