Expert warns time is running out to fix the Social Security system as reserve funds are running out

Ecuador’s Social Security (IESS) system is approaching collapse, according to Rodrigo Ibarra, president of Actuaria Consultores, “For more than 10 years, the government has failed to confront the problem,” he says. “The time is now for a structural overhaul. The time for denial and lies is over.”

Social Security headquarters in Quito.

In an interview with the newspaper La Hora, Ibarra described what he called an “unsustainable dilemma.”

“We have 700,000 retirees receiving $7 billion annually, but contributions from affiliates total only $3.3 billion. The $3.7 billion gap is being filled by the IESS reserve, but this funding will be depleted in two years.”

He adds that the Social Security was designed to have eight workers supporting one retiree. “Today, because of the declining birth rate, we have only three workers for every pensioner. Obviously, this formula has to change.”

Ibarra says President Daniel Noboa has an opportunity to fix the system. “Noboa won convincingly, and he also won with the support of young people who will one day depend on the pension system,” he says, “This is the right political moment to make changes, because the president owes it to the youth as well as to those already receiving pensions.”

Ibarra blames part of the IESS shortfall on the health care system, which he insists must also be overhauled. “Either it is scaled back, or it receives separate funding from the general budget,” he says. “The first obligation of IESS is to retirees.”

Ibarra insists that reform “must align with the evolving demographic and employment realities” and should consider a system that blends the current system with individual savings accounts. Under this model, each member’s pension would be funded partly from the employee-employer collective pool and partly from personal savings. “For example, he says, “a future retiree earning $1,000 per month might receive a pension of $800, with $500 provided by IESS and $300 from their individual account.”

Ibarra admits that his is not the only approach to reform. “Another one would involve a large tax increase to fund the health care component of IESS,” he says. “You could also increase the amount employees and employers pay into the fund, but both of these approaches would be unpopular with the public.”

Whatever approach is taken, Ibarra says, the time to act is now.