Parliament has approved sweeping reforms of the social security retirement system that will, among other things, increase normal retirement age (NRA), introduce early retirement options and allow retirees to work while drawing a pension. The legislation also modifies the social security defined benefit (DB) pension formula; eliminates the income floor for compulsory employee participation in social security’s defined contribution (DC) retirement program; and will consolidate the general social security program with separate programs for the military, the police, banks and professionals as a single system covering almost the entire workforce.
The most notable changes introduced by Law No. 20130 include:
Uruguay’s aging population, along with a low birth rate and an increased life expectancy, have raised concerns about the sustainability of the social security system. According to the government, public spending on pensions equals 11.1% of GDP, well above the OECD average of 7.7% and on par with Spain (with public spending equal to 11.3% of GDP according to OECD data). The reforms are intended to reduce pressures on public spending by requiring that employees work longer (or accept a reduced benefit at retirement) and strengthening the individual DC account program. The changes are not expected to have a direct impact on employers, although the new rules and requirements will affect employees and the local benefit environment.