Costa Rica's Social Security Box Nears Use of Pension Reserves Ahead of Schedule
The CCSS warns it may tap into the IVM reserve for pension payments as early as 2025, 16 years ahead of original projections due to rising early retirements and growing deficits.
The Costa Rican Social Security Fund (CCSS) has alerted that it may be forced to use the reserve of the Retirement, Invalidity, Old Age, and Death regime (IVM) to pay pensions to retirees as early as 2025, despite usage being projected until 2041. This would mark the first instance in history that these funds are utilized to cover such obligations.
In 2023, a significant increase in early retirements has led to a notable escalation in the institution's pension expenditure from the IVM, which is the country's primary retirement fund.
According to CCSS's pensions manager, Jaime Barrantes, this situation compelled the CCSS to use nearly all the interest from the reserve to cover the deficit and guarantee disbursements.
Barrantes underscored that if income from contributions and other sources proves insufficient, it will be necessary to tap into the reserve to ensure pension payments.
"Contribution revenues are not sufficient and are supplemented by reserve interest, but not with the reserve itself.
For 2024, we used almost all of the interest, meaning the reserve could not grow.
This is a risk that, dependent on circumstances, could eventually occur this year, but it may still be premature to confirm," he detailed.
During the February 27 session of the CCSS Board of Directors, financial manager Gustavo Picado explained that since 2020, pension expenses from the IVM have consistently outpaced contribution revenues.
This gap widened in 2024, with revenues reaching ₡1,281.932 billion while pension payments soared to ₡1,498.734 billion, resulting in a discrepancy of ₡216.802 billion.
This amount is more than double the disparity recorded in 2023, which was ₡101.803 billion.
In 2022, the gap was ₡80.899 billion, while in the preceding years, the discrepancies were ₡62.030 billion and ₡58.229 billion in 2021 and 2020, respectively.
The structural issues facing the IVM are exacerbated by demographic changes such as an aging population and the revaluation of pensions, along with adjustments made in response to reforms introduced in January 2024.
Projections from the latest Actuarial Valuation of the Invalidity, Old Age, and Death Insurance, presented in September 2022, suggested that the pension regime would enter a critical phase in 2035, at which point contributions would no longer cover fund expenses.
However, warnings from Picado suggest that since 2020, revenues have been inadequate to meet expenses, bringing the point of crisis forward by 15 years.
Should the reserve be utilized in 2025, this represents a 16-year acceleration from initial forecasts.
Once reserves are depleted, Article 177 of the Constitution mandates that the deficit must be covered by the national budget.
Barrantes noted that a pending debt repayment to the Ministry of Finance, amounting to ₡56 billion, might alleviate the need to access the IVM reserve for pension coverage.
Minister Nogui Acosta confirmed that this debt will be settled in 2025. The accumulated interest has raised the total debt to ₡68 billion, according to Barrantes.
Discussions are reportedly advanced for the Ministry of Finance to negotiate repayment of this overdue amount, which was omitted from the 2018 budget, as ruled by the Constitutional Chamber in June 2020.
Two additional measures proposed by Barrantes may mitigate the reserve's depletion: the passage of a bill that would reallocate 0.25% of employer contributions from Banco Popular to the CCSS for IVM pensions and an increase in contribution rates.
This legislation, first introduced by former deputies in 2019, has been revived by legislator Alejandro Pacheco in 2024 and is currently under consultation.
Moreover, Barrantes highlighted that higher salary levels could lead to increased contributions, thereby enhancing revenue for the fund.
Notably, a 0.5% increase in pension contributions is set to take effect in January 2026, which is anticipated to bolster collections considerably.
The CCSS confirmed that for pension payments in 2024, nearly all reserve interest has been utilized, and direct access to the reserve is not ruled out for 2025.
In 2023, a significant increase in early retirements has led to a notable escalation in the institution's pension expenditure from the IVM, which is the country's primary retirement fund.
According to CCSS's pensions manager, Jaime Barrantes, this situation compelled the CCSS to use nearly all the interest from the reserve to cover the deficit and guarantee disbursements.
Barrantes underscored that if income from contributions and other sources proves insufficient, it will be necessary to tap into the reserve to ensure pension payments.
"Contribution revenues are not sufficient and are supplemented by reserve interest, but not with the reserve itself.
For 2024, we used almost all of the interest, meaning the reserve could not grow.
This is a risk that, dependent on circumstances, could eventually occur this year, but it may still be premature to confirm," he detailed.
During the February 27 session of the CCSS Board of Directors, financial manager Gustavo Picado explained that since 2020, pension expenses from the IVM have consistently outpaced contribution revenues.
This gap widened in 2024, with revenues reaching ₡1,281.932 billion while pension payments soared to ₡1,498.734 billion, resulting in a discrepancy of ₡216.802 billion.
This amount is more than double the disparity recorded in 2023, which was ₡101.803 billion.
In 2022, the gap was ₡80.899 billion, while in the preceding years, the discrepancies were ₡62.030 billion and ₡58.229 billion in 2021 and 2020, respectively.
The structural issues facing the IVM are exacerbated by demographic changes such as an aging population and the revaluation of pensions, along with adjustments made in response to reforms introduced in January 2024.
Projections from the latest Actuarial Valuation of the Invalidity, Old Age, and Death Insurance, presented in September 2022, suggested that the pension regime would enter a critical phase in 2035, at which point contributions would no longer cover fund expenses.
However, warnings from Picado suggest that since 2020, revenues have been inadequate to meet expenses, bringing the point of crisis forward by 15 years.
Should the reserve be utilized in 2025, this represents a 16-year acceleration from initial forecasts.
Once reserves are depleted, Article 177 of the Constitution mandates that the deficit must be covered by the national budget.
Barrantes noted that a pending debt repayment to the Ministry of Finance, amounting to ₡56 billion, might alleviate the need to access the IVM reserve for pension coverage.
Minister Nogui Acosta confirmed that this debt will be settled in 2025. The accumulated interest has raised the total debt to ₡68 billion, according to Barrantes.
Discussions are reportedly advanced for the Ministry of Finance to negotiate repayment of this overdue amount, which was omitted from the 2018 budget, as ruled by the Constitutional Chamber in June 2020.
Two additional measures proposed by Barrantes may mitigate the reserve's depletion: the passage of a bill that would reallocate 0.25% of employer contributions from Banco Popular to the CCSS for IVM pensions and an increase in contribution rates.
This legislation, first introduced by former deputies in 2019, has been revived by legislator Alejandro Pacheco in 2024 and is currently under consultation.
Moreover, Barrantes highlighted that higher salary levels could lead to increased contributions, thereby enhancing revenue for the fund.
Notably, a 0.5% increase in pension contributions is set to take effect in January 2026, which is anticipated to bolster collections considerably.
The CCSS confirmed that for pension payments in 2024, nearly all reserve interest has been utilized, and direct access to the reserve is not ruled out for 2025.
