Old age and retirement plans

HAVANA – Much has changed since the first comprehensive social security system was established in Cuba in 1963 under Law 1100. It was conceptualized as an order of protection for Cuban citizens based on the principles of solidarity, universality, comprehension and integrality. More than half a century later the dates became ephemeris and anniversaries are recounted of the grandiose, old days when other generations had the good fortune of these luxuries. Now we must ask ourselves if the system is functional, sufficient and sustainable today.

Henry Colina, a young economist, researcher and professor at the University of Havana, describes the Cuban social security system in simple terms: It is “a distribution system that was present for many years in Latin America and the Caribbean world. The people who work today maintain with their contributions the pensions of the people who are retired. It also has short-term benefits (maternity and illness, among others) and long-term benefits (old age, disability and death, etc.).”

He says Cuba has an almost universal coverage in social security pensions, one of the highest in Latin America, comparable with those of Chile, Costa Rica and Uruguay. In 2017, this coverage represented an expense of 5.2 billion pesos in old-age, disability and death pensions, of which 99.4 percent came from workers’ contributions. For the first time in more than a decade, the workers’ contributions are close to the actual cost of the pension payments, given that the state has financed an average of 31.8 percent of that amount over the past 12 years without compensation, a number that continues to grow every year in the country.

In the case of Social Assistance (programs dedicated to the elderly, maternity leave, accidents at work, etc.), 2017 represented an expense of more than 339 million pesos that all came from the state coffers.

Pensions

According to Henry Colina, the Cuban system is designed for people to access social security through formal work. “After contributing for a number of years a pension is calculated that you receive at the end of your life. But it is not necessarily connected to the real economic conditions of the country.” The calculation, for example, does not take into account inflation, the real purchasing power of the currency, the levels of consumption necessary to sustain a decent standard of living and “it also ignores the reality of Cuba’s labor market today,” adds the professor.

There is a tendency to think that a system “designed for formal, constant, productive work, and also for employers to actively contribute” is logically homogeneous. But based on the current economic reforms, Colina characterizes the “different forms of contributions and the different ways of collecting individual contributions included presently” as the result of recent modifications to this social security model that seeks to face both the accelerated aging of the population and the financial instability it faces.

He adds that “there are so many actors in the non-state sector in Cuba right now (the cooperatives, the mixed and private sectors, all of them converging, without differentiating between employees and employers), which makes up around 30 percent of Cuba’s employment numbers, and this design format logically clashes with the classical system.” 

In summary, Colina emphasizes the level of coverage as one of the system’s great strengths. Regarding vulnerabilities, “like almost all formal income in the Cuban economy, pensions are running into reality. In nominal terms, you divide it by the price index and it gives you a salary and a pension that is not enough. And of course, pensions are tied to salaries. And if the problem of salaries is not resolved this will not be resolved either.”

Beneficiaries of these pensions cannot live in the Cuba of today with the retirement income they receive after a lifetime of work. Colina references the 2010 National Survey on Aging. “At that time, 75.5 percent of retired people said that pensions were their main source of income, and that their pension was important. In addition, 80 percent said it was not enough.” Today with more people of retirement age and greater financial contractions, the data must be devastating.

According to figures from the National Institute of Social Security (INASS), Dr. Silvia Odriozola Guitar and Henry Colina Hernandez are quoted in an article stating that “the highest percentage of pensioners in the country receive incomes in the range of between 200 and 242 CUP [Cuban pesos], which represent 57.9 percent of total retirees.”

According to his sources, Colina says that “those who earn more than 400 pesos are 6.1 percent of the pensioners.” Adding that “In the statistics that I have seen there are pensions of up to 800 pesos, and they can reach up to a thousand, but that would be a very low percentage of the retirees.”

It deals with a very bad combination of circumstances for this sector of the population in Cuba: There are more and more people of retirement age and less and less economically active and employed persons in the country, so there will be more people to look after and fewer people to produce what is needed to take care of them. Emigration rates — made up mostly of young people and women of reproductive age –continue to rise so that “the replacement” of  those productive forces is decreasing. The quality of jobs in the state sector is low — where approximately 70 percent of employment on the Island is concentrated — and Cuba suffers from the absence of more effective incentive policies for the return of its emigrants, for investments, both foreign and national, and the creation of small and medium-sized national businesses, factors that could help fatten the Cuban pension fund.

“I think there has been a slowness to react in Cuba’s institutions to the reality of aging,” the researcher says. “The general system has to be modified, and for me retirement age is the last thing we must deal with: it is an unpopular issue, it was modified only 10 years ago and extending the retirement age is to procrastinate, postpone a problem. There are intermediate solutions. First you must index retirements. And we must investigate, within that group of people, who needs more and/or less. Because everyone has a pension, but you have to treat people who are at greater risk faster. The data exists; is not difficult.”

From his perspective, Henry Colina would like to project his life 10 years into the future “and be able to say that on that date I will be able to survive based on the work I’m doing and be able to start a family,” explains the professor bluntly. “I’m not asking for much, I’m asking for the certainty of being able to do that. Right now it is not possible.”

We are all part of this gesture of solidarity, a universal and comprehensive system. This system of social protection needs to function not only because today’s elderly are the most exposed to socio-economic vulnerabilities, but because the generations that will follow also need that security, a minimum of security.

Cuban social security includes pensioners, yes, but it must also look forward for those who contribute to the system today.