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ARGENTINA
The return of shared pensions
Andrés Gaudin
9/12/2007
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Will private pensions be a thing of the past?

Thirteen years after the privatization of Argentina’s pension system, the government decided to give workers the option to return to a state-run pension system, a move that would cut the number of affiliates of the private Retirement and Pension Fund Administrators by half by the end of the year.
In 1994, during a wave of privatizations that affected various sectors of the state, then-President Carlos Menem (1989-99) sold the state’s pension system, forcing newly salaried workers to adhere a private pension program, the majority of which, owned by multinational finance companies. Those who were already working were able to choose between the private and state systems.

But a law passed in April 2007 allows all workers who were obligated to sign up for the private program, to switch over to the public pension. Those new to the labor force can chose either plan, including one of the 11 private pensions that have lasted since 1994, when 26 were established.

Teachers, academics, scientists, members of the judicial branch and diplomats, totaling around 300,000 people under special plans, are required to return to the state plan, and any of their accumulated funds from the private plan will be transferred over to the state-run National Social Security Administration, or ANSES.

Kirchner changes stance
President Néstor Kirchner, then the governor of the southern Santa Cruz province, was one of the champions of privatized pensions during the trend in the 1990s. But he did not say what caused him to prefer personally to switch to a privatized fund, in which US-based firm Metropolitan Life had significant interest, back in 1994.

Of the 14.5 million people who comprise the Argentina’s economically active population, 11.6 million were affiliated to the private funds, but according to official figures, in the first month since the law went into effect alone, almost 400,000 salaried workers opted to return to the state system. The national social security office estimates that that number will reach 2.5 million by December of this year.

“One day in 1994, I received a letter telling me that from that moment, I was affiliated with a private pension fund. My anger, like those of so many, was enormous, but there was no way to cancel that arbitrary transfer. So it seems fair to me that now, finally, the law gives us the right to go back” to the old system, said Clara Bogado, a judicial clerk who is set to retire within five years, when she turns 60.

Under the old system she prefers, the Argentine workforce contributes to a common fund, similar to US social security.

Bogado is one of 1.4 million salaried Argentine workers with less than 10 years before their retirement — women who presently are 50 years old or more and men who now are 55 years old or more and whose funds in the private system did not exceed 20,000 pesos (US$6,350).

A mix of contributors
This sector will be able to receive a minimum of $184 per month under the new law. The transfer of the private pension funds to the public one includes also some 500,000 self-employed people.

Lawmakers also established a Sustainability Fund, $7 billion in financial assets and cash that will be transferred from the private funds to what has already been accumulated in the public one “to guarantee that the funds of the retired is never lost for a lack of skill or planning in the management of public accounts,” said ANSES’ head Sergio Masa.

If the estimated 2.5 million transfers from the private to the public fund are added to the 300,000 beneficiaries of special plans, the 1.4 million workers who have less than 10 years before their retirements and the 500,000 self-employed contributors, the private funds would lose 4.7 million members, reducing it to 6.9 million people. The state-run pension fund would have 7.6 million subscribers.

According to estimates of the state-run fund, and even private insurers, in the next five years the state fund would grow four times more than the private one.

But it is not all bad news for the private funds. They retain the right to operate the funds, which have accumulated under their control over the past 13 years. Though they cannot charge for this task, these private companies can reap the benefits of investing this huge mass of money.


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