Thank you, Joshua. It would be very helpful if you could cite sources to support the claim that these reforms introduce "austerity into the pension system". Quite the contrary:
1. Before the reform, there were two completely independent subsystems:
a. Exclusively Defined Benefit Subsystem (SEBD in Spanish): This subsystem includes all current retirees and workers who were 35 or older in 2007 (roughly 50 years old today). It ran out of reserves last year to pay retirees. We had 20 years to prevent this outcome, but nothing was done beyond multiple dialogue roundtables.
b. Mixed Subsystem: This includes younger workers and new entrants to the labor market since 2007. There are no retirees in this subsystem. As of last year, it held over B/. 6 billion in reserves, part of which was allocated to individual accounts.
2. The reform merges both previous subsystems to finance pensions under the SEBD. Younger workers (formerly in the Mixed Subsystem with partial individual accounts) will now contribute to funding the pensions of current retirees. This new, consolidated reserve is called the Unified Solidarity Fund. It reintroduces the concept of intergenerational solidarity that was lost in the previous reform.
3. Retirement conditions remain unchanged for current retirees and those within seven years of retirement. No one’s retirement age is being raised.
4. Individual accounts are eliminated and replaced by notional accounts (inspired by the Swedish system), which serve only as a reference for pension calculation. Financially, the funds are pooled to pay current retirees; they are no longer individualized. This is because there were no longer sufficient funds to cover existing pensions, and the government lacked the resources to intervene.
5. Conditions do change for workers (for the better) from the Mixed Subsystem who now move into the Funded System with a Solidarity Guarantee (SCGS). Previously, the ILO estimated a replacement rate of no more than 35% under the Mixed Subsystem, since part of the contribution funded a limited pay-as-you-go component (capped at B/. 500) and the rest went to low-yield individual accounts (less than 2%).
6. Under the SCGS (new system), pensions are calculated like savings accounts: workers receive higher pensions if they contribute more (i.e., work more years) and start contributing early. A minimum return of 4% is guaranteed. In most cases, this results in higher replacement rates (pension as a % of average wage) than under the previous Mixed Subsystem. Only when workers start contributing very late (e.g., at age 35) do they receive lower pensions, due to reduced time for compound growth.
7. The reform increases non-contributory pensions from B/. 120 at age 65 to B/. 144 per month for older adults who did not contribute. For those who did contribute but whose calculated pension falls below B/. 265, the government will cover the difference — something that was not done previously. Both thresholds, B/. 144 and B/. 265, will be adjusted annually for inflation.
8. Under the reform, pensions in the new system will be indexed to inflation. This is a critical change, as pensions were previously not adjusted and lost purchasing power over time. The reform addresses this issue.
9. Not only is the retirement age not increased, but the reform’s financing comes from multiple sources: workers from the former Mixed Subsystem (intergenerational solidarity), private employers (who will face a 3-point increase in employer contributions by 2027, potentially amounting to at least B/. 500 million annually), and the government, which will transfer B/. 966 million each year to the Unified Solidarity Fund. This annual transfer must grow with GDP to sustain the reserve over the long term.
10. Regarding the investment of funds: 90% will continue to be managed by the Social Security Fund (CSS) through state-owned banks (BNP or Caja de Ahorros), and up to 10% may be managed by private entities. That said, most of the assets remain in state bank deposits (with low returns) and government-issued bonds or notes.
Correction: Protesters have described pension reforms as “austerity measures”, but the government claims pension benefits will be increased for many participants. People who enter the program later in life will see reduced benefits, but most pensioners will see modest increases due to inflation adjustments, according to government claims.
This PWS feature originally presented protesters’ claims as a neutral fact. Those sections have since been corrected.
Thank you, Joshua. It would be very helpful if you could cite sources to support the claim that these reforms introduce "austerity into the pension system". Quite the contrary:
1. Before the reform, there were two completely independent subsystems:
a. Exclusively Defined Benefit Subsystem (SEBD in Spanish): This subsystem includes all current retirees and workers who were 35 or older in 2007 (roughly 50 years old today). It ran out of reserves last year to pay retirees. We had 20 years to prevent this outcome, but nothing was done beyond multiple dialogue roundtables.
b. Mixed Subsystem: This includes younger workers and new entrants to the labor market since 2007. There are no retirees in this subsystem. As of last year, it held over B/. 6 billion in reserves, part of which was allocated to individual accounts.
2. The reform merges both previous subsystems to finance pensions under the SEBD. Younger workers (formerly in the Mixed Subsystem with partial individual accounts) will now contribute to funding the pensions of current retirees. This new, consolidated reserve is called the Unified Solidarity Fund. It reintroduces the concept of intergenerational solidarity that was lost in the previous reform.
3. Retirement conditions remain unchanged for current retirees and those within seven years of retirement. No one’s retirement age is being raised.
4. Individual accounts are eliminated and replaced by notional accounts (inspired by the Swedish system), which serve only as a reference for pension calculation. Financially, the funds are pooled to pay current retirees; they are no longer individualized. This is because there were no longer sufficient funds to cover existing pensions, and the government lacked the resources to intervene.
5. Conditions do change for workers (for the better) from the Mixed Subsystem who now move into the Funded System with a Solidarity Guarantee (SCGS). Previously, the ILO estimated a replacement rate of no more than 35% under the Mixed Subsystem, since part of the contribution funded a limited pay-as-you-go component (capped at B/. 500) and the rest went to low-yield individual accounts (less than 2%).
6. Under the SCGS (new system), pensions are calculated like savings accounts: workers receive higher pensions if they contribute more (i.e., work more years) and start contributing early. A minimum return of 4% is guaranteed. In most cases, this results in higher replacement rates (pension as a % of average wage) than under the previous Mixed Subsystem. Only when workers start contributing very late (e.g., at age 35) do they receive lower pensions, due to reduced time for compound growth.
7. The reform increases non-contributory pensions from B/. 120 at age 65 to B/. 144 per month for older adults who did not contribute. For those who did contribute but whose calculated pension falls below B/. 265, the government will cover the difference — something that was not done previously. Both thresholds, B/. 144 and B/. 265, will be adjusted annually for inflation.
8. Under the reform, pensions in the new system will be indexed to inflation. This is a critical change, as pensions were previously not adjusted and lost purchasing power over time. The reform addresses this issue.
9. Not only is the retirement age not increased, but the reform’s financing comes from multiple sources: workers from the former Mixed Subsystem (intergenerational solidarity), private employers (who will face a 3-point increase in employer contributions by 2027, potentially amounting to at least B/. 500 million annually), and the government, which will transfer B/. 966 million each year to the Unified Solidarity Fund. This annual transfer must grow with GDP to sustain the reserve over the long term.
10. Regarding the investment of funds: 90% will continue to be managed by the Social Security Fund (CSS) through state-owned banks (BNP or Caja de Ahorros), and up to 10% may be managed by private entities. That said, most of the assets remain in state bank deposits (with low returns) and government-issued bonds or notes.
Sources:
- https://w3.css.gob.pa/wp-content/uploads/2020/12/INFORME-OIT.pdf
- https://www.mef.gob.pa/wp-content/uploads/2025/05/250428-Republic-of-Panama-CSS-Reform-Takeaways.pdf
- https://consultas.css.gob.pa/wp-content/uploads/2024/12/2024.12.02-Presentacio%CC%81n-Modelo-CSS-PL-164-de-2024.docx
Hi Andrés
I really appreciate the data, and especially the receipts. I will give the links a read when I'm back at home and consider an edit/update
Added the following correction:
Correction: Protesters have described pension reforms as “austerity measures”, but the government claims pension benefits will be increased for many participants. People who enter the program later in life will see reduced benefits, but most pensioners will see modest increases due to inflation adjustments, according to government claims.
This PWS feature originally presented protesters’ claims as a neutral fact. Those sections have since been corrected.