Within the national expenditure, that is, without that incurred by the provinces, Social Security is the item that takes the most resources. The 2022 Budget, which was ultimately rejected by Congress, estimates that 54% of spending goes to Social Security and, of this, most of this corresponds to retirement and pensions. Therefore, every time the fiscal deficit enters the crosshairs, the pension system has all the numbers for the “adjustment draw”.
The last two steps have introduced changes in the way assets are moved. And while these reforms are sold as a mechanism to improve retirees, they are just another way to sneakily lower spending.
But adjustments in pension spending have not been specific to recent governments. It has been years - actually more than years, decades - that this trick has been used. In order not to dust off the facts of almost a century ago, you can start far, but not so far.
Less than a year after the reform of the system in 1994, which had established that holdings were adjusted according to the variation in the average contribution to the system - something like adjusting for salaries - the clause was replaced by ad-hoc adjustments. This left the policy established from 2002 onwards served on a platter.
Without a fixed rule, adjustments were discretionary and until 2006 the increases were only for the minimum retirement - which at that time represented about 22% of the beneficiaries. Thus, while the amount in that band rose 94% in real terms between 2002 and 2009, for the rest their purchasing power fell by 20%.
These handwritten increases were causing pensioners who were above the minimum to end up being included in that group as the lowest credit reached approached the rest that remained in nominal terms.
From 2009 onwards, holdings were automatically adjusted with a formula that averaged inflation with wages, half and half, an adjustment that was maintained until 2017. During this period, retirements grew by 13% in real terms, but those with higher than the minimum income levels never recovered what was lost in the previous stage, giving rise to pension lawsuits against the State.
In 2017, there is a change in the formula. Under the argument of improving retirees, it was proposed that they begin to move with inflation, although it ended up negotiating that 70% should be computed by the variation of the Indec Consumer Price Index and 30% by the increase in formal wages (Ripte). Behind this was the idea that inflation would be reduced and, in this way, mobility would tend to be less, although this impact would only be seen in the medium term.
In 2020, as soon as he assumed, the new government raised the need for a new change, for which it took a year to study the issue, during which the increases were discretionary and, again, generated differences between the minimum and the rest.
Finally, after the year of study to find an overcoming solution, it was returned to the same equation that governed until 2017. While it was publicized as a change to improve pensions, it was launched just when, interestingly, past high inflation rates indicated particularly high increases, complicating the expenditure and deficit scenario.
Compared to December 2020 with the previous year, the new formula represented a smaller adjustment, 35.4% (in the case of the minimum, the highest had lower increases) versus 40.2%. All this with an inflation rate of 34.8%. However, in 2021 things turned out the other way around, and the new modality led to a greater increase than it would have been: 52.7% versus 50%. This with an inflation of 52.2 percent.
Going backwards, 2018 and 2019 also showed greater increases with the previous administration's adjustment, simply because the expectation of reducing inflation did not happen.
What was the best adjustment rule?
None in particular. Each rule is designed for a different context: if high real wage increases and low inflation are expected, the mobility that now governs - which was the same as that governed in the period 2009 to 2017 - is likely to increase higher than the previous one and vice versa.
But, in the end, how have retirees looked since mobility rules were established? Worse. The average minimum credit for 2021 ended up being almost 5% lower than in 2009 and, in addition, the lowest since 2006. This is even with all the redistribution policies that gave higher increases to the minimum retirement, which indicates that beneficiaries with higher assets have fared even worse.
This column was published in Indicadores de Cojuntura Magazine 639, March 2022 Fundación FIEL
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