Nicaragua: Pension Cuts and Higher Employer/Worker Contributions

Higher contributions, lower pensions: Companies and workers will have to contribute more, so that in the end, pensioners receive less.

Higher contributions

30 de enero 2019


On Monday, April 16, the president of the Board of Directors of the Nicaraguan Institute of Social Security (INSS), Roberto Lopez, announced the government’s unilateral decision to impose several unpopular reforms to the country’s pension system, which served as a trigger for a crisis that had been accumulating for a long time before.

This Monday, January 28th, that is 287 days (and over 325 dead) later, Lopez revives Resolution 1-317, now called Resolution 1-325, in which he orders application of several of the decisions that lit the wick of the Rebellion of April, increasing worker and employer contributions, while reducing the amount of new pensions by up to 30%.

“With the purpose of continuing to guarantee the welfare of the insured and pensioners, it is necessary to implement changes in social security,” says a document that aims to support the recycled reform.

The changes include that employers with 50 workers or more have to increase their contribution by 3.5 percentage points, to 22.5%. Those employers with less than 50 workers, face an increase of 2.5 percentage points, to 21.5%.

An independent economist, who spoke with Confidential on the condition of remaining anonymous, said that dictating a social security reform as they wanted to do in April, “would be the coup de grace to large companies.”

To the insured, the contribution rate is increased by 0.75 percentage points, with which their contribution goes up to 7%, while the State increases its contribution by 1.5 percentage points “for health”.

Higher contributions, lower pensions

Self-employed workers (such as professionals who pay in for their own insurance) will have to contribute an additional four percentage points to what they already pay, while establishing the need to “assure that the insured contribute the percentage established, applying it to the salary they earn… contributing according to what they earn. The person who earns more pays more.”

The reform also changes the way in which the amounts of future pensions are calculated, lowering the maximum pension to be received to the equivalent of 70% of the person’s last wages. The current calculation base allows up to 80%.

Likewise, the reform eliminates the annual 5% adjustment on pensions to cover the weakening of the national currency. Now the pension received by retirees will deteriorate year after year, so that the Government of Daniel Ortega indirectly achieves its objective of removing 5% from existing pensions, as ordered last April [and rescinded after a week of protests].

With the formula currently in force (until Ortega sign the new reforms package), a pensioner who earned 15,000 córdobas per month and had contributed at least 750 weeks, would receive a pension of 8,671 córdobas, while, with the new calculation parameter, it would drop to 5,369 córdobas, that is, 38.1% less. (1 USD = 32.50 córdobas)

According to deputy Edwin Castro, head of the FSLN caucus in the National Assembly, “these measures are redistributive, fair, for the benefit of the immense majority of the people of Nicaragua, in addition to not increasing the age or the number of contributions.”

Meanwhile, fiscal expert Julio Francisco Baez, questioned the reforms, recalling “the campaign promise of eleven years ago”, to enact a Comprehensive Social Security Law.

Baez also wondered how long the INSS would be financially “relieved” with the reforms, a question Castro refrained from answering. Baez also questioned, “What study shows that employers and workers will withstand this blow? In April, the seriousness of that reform was duly noted. Does the government want to reedit it?”

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Iván Olivares

Periodista nicaragüense, exiliado en Costa Rica. Durante más de veinte años se ha desempeñado en CONFIDENCIAL como periodista de Economía. Antes trabajó en el semanario La Crónica, el diario La Prensa y El Nuevo Diario. Además, ha publicado en el Diario de Hoy, de El Salvador. Ha ganado en dos ocasiones el Premio a la Excelencia en Periodismo Pedro Joaquín Chamorro Cardenal, en Nicaragua.


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