The three bills of law comprising the government’s pension reform were submitted to Congress on Monday, August 14: a constitutional reform creating the Collective Savings Council; the bill of law creating the New Collective Savings, which increases the coverage of the pension system and strengthens the Solidarity Pillar; and the bill of law that introduces specific changes to the Individually Funded System.

This brief article broadly describes the first two bills of law and their potential effects.

The New Collective Savings will be financed with the new contribution by the employer, which will reach 5% six years after the publication of the law (1% after the first year, and 0.8% in the remaining years). When fully operational, 3% will be allocated to the Personal Savings Accounts, and 2% to the Collective Savings Fund. This fund will finance three benefits, in the following order of precedence: the intergenerational contribution, the compensatory bond for women, and the intra-generational solidarity contribution.

It is clearly evident that the Government has ruled out incorporating all of the future contribution increase into the individual accounts of workers. The article concludes that, in addition to failing to take the opportunity to maximize the pensions of workers, and minimize the negative impact on employment (there is a potential risk of putting the jobs of nearly 400,000 workers at risk), this would install a highly regressive PAYGO component, which could seriously affect the determining factors of higher pensions in future.