Living from Savings

Taking into account the importance of this reform, which will be submitted shortly to Congress for discussion, we have elaborated a resume of the said proposal presented by Fernando Paiz, Commissioner for the Reform of the Pension Funds, during the First International Forum of Pension Funds.

In Guatemala, there exist at least nine social security systems, among them the IVS of the Social Security Guatemalan Institute (IGSS) that mainly includes the workers from private business (742 thousand dues-payers). The fact that so many systems exist led to the institutional and monetary disarticulation in the social security area, which at the same time generated multiple systems with diverse requirements.

The IVS program was re-structured according to the progressive mean payment, with a deduction of 4.5% of the salary, to be increased after some years. Nevertheless, the said increase has not occurred. In 1995 the relation between active workers and pensioners was close to 11, and it is considered that this relationship should decrease, having less active workers for each pensioner.

The previsional reform will be oriented towards the creation of a unitary system with rules that apply to all workers equally. The System of Previsional Savings should cover such contingencies as invalidity, retirement, and death, but not over-all health. All this falls into the legal cover of Article 100 of the Political Constitution of the Republic, which indicates that the social security system exists as a public function, whose application falls under the responsibility of IGSS. Therefore, the said institute assumes the application of the laws and regulations, but does not provide the services in the social security area directly, since, according to Article 118 of the Constitution, the role of the State is only complementary.

One of the most innovative characteristics of the system refers to the acknowledgment of the world tendency towards labor flexibility, which allows the existence of independent workers who do not loose their right to a just pension. The proposed systems allows for better pensions thanks to the capitalization of savings.

The new system will allow the government to make better use of its tax collection in order to provide services, since it is estimated that the ADAP (Previsional Savings Administrators) and the rest of the participating organizations will contribute with the payment of taxes to the general tax collection system. The road is still long and complex for the previsional reform, but the best that Guatemalan workers can hope for is to have a new and stable system, before the existing pensioner's conditions actually collapse.