VENEZUELA: New Social Security Measures for Retirement Funds

By Humberto Márquez Reprint | | Print |

Humberto Marquez

CARACAS, Mar 17 1995 (IPS) - Venezuela began discussing private social security systems, which will begin with a change in dismissal payments, lightening employers’ savings contributions in exchange for increased salaries in the short-term.

This change will open the door to private pensions like those in Chile (1990), Peru (1981-1982), Colombia (1993) and Argentina (1994), brought in on the wave of neoliberal reforms affecting the continent in this decade.

President Rafael Caldera appointed a commission to draw up a law on dismissal payments or “social loans,” with a dual voluntary system giving workers a choice between the new and the old systems.

Employment Minister Juan Garrido said the proposal also included the modernisation of the state social security organisaton and the establishment of funds to meet payments.

Under the new system all employers will have to pay at least one month’s salary per employee per year into a trust fund managed by financial companies under state supervision.

The worker will not be able to touch these funds for 15 years or until they reach the age of 60 – even if they change jobs – though they could take loans from the fund for housing, health or education purposes.

Also, those protected by the new system would have an annual wage increase whenever yearly inflation is over five percent (it was 45 percent in 1993, 70 in 1994 and is predicted to reach 35 points this year).

Other contributions from both employers and employees will go into funds to pay for unexpected unemployment, invalidity and old age pensions, providing collective health services for the workers and their families administered by the remodelled social security organisation.

The old system pays a dismissed or retiring worker one months’ wages per year worked, calculated on the last salary, which Fedecameras Chamber of Trade leader Edgar Romero said, “geometrically multiplies the payment.”

“This multiplication causes great problems for companies like Caracas electricity who have 8,000 workers,” he said.

“There would be no problem if it wasn’t for inflation, but this dislocates the costs structure of the payments and reduces possibilities of salary increases,” he added.

Economics Professor Jose Grasso estimated that within a year the pension trust funds of the new system will have collected a billion dollars, rising to between 10 and 12 billion within 10 years.

Meanwhile the state needs to rapidly attend to the 14.7 billion dollars owed in social loans to its 1.2 million employees – a sum equal to a full years’ national budget, though it is systematically excluded from budget and deficit calculations.

Workers’ Confederation leader Federico Ramirez said he considered the proposal a “working paper,” opposing the idea that workers should have to wait 15 years to “use the money that belongs to them, or pay interest on advances.”

Economist Samuel Freije said the new system is enforced low interest saving, which means that inflation prevents the funds from serving their planned purposes for the workers.

“Many companies do not open trust funds, but use the money as working capital with the risk that the workers will never be able to collect this money,” said Freije.

“The attack our nation has seen on social payments since 1989 marks the arrival of labour flexibility criteria,” said Ramirez.

“With half the active population in the informal economy, where there are no social payments, on top of 15 percent unemployment, this problem affects only 35 percent of the workforce, mostly state employees,” said Ramirez.

He then asked, “Who is going to administer the funds that replace the loans? The Venezuelan bankers who’ve lost so many people’s savings over the last year?”

Some 17 banks went into receivership last year – 60 percent of the sector – and many were accused of mismanagement of funds and even defrauding the State.

Garrido defended his proposal by stating that the debate has only just begun and Congress have still to discuss it, adding that “the economy needs savings systems and must return purchasing power to Venezuelan salaries.”