The absurd civil service pension system in Venezuela

March 23, 2006

One of the
problems in Venezuela
that needs to be addressed is that of pensions. The country only has 26 million
people, but some three million are Government employees who may enjoy sometimes
easy pensions. To make matters even worse, these pensions are unfunded so that
payment comes out directly out of the regular budget of the institution where
the person was employed, as in the case of the Comptroller who retired from the
Libertador Municipality.

This is where politics usually comes in. It works into this perverse system in
two different ways. First, whenever a new Government is elected, the Government
becomes very generous in giving out early pensions to get rid of those that it
does not consider to be loyal. Second, many retirees get involved in politics
and hustle and lobby for positions that will have a higher salary than the
position they retired from. The reason? Once they leave the new position, they
will retire once again, but at the higher new salary.

The system is so absurd, that at the higher levels, the retirement pension is
equal to the salary of the position and if that salary goes up, so does the
pension. Thus, all former Central Bank Directors have a pension equal to the
salary of a current Director.

The system becomes particularly perverse when it comes to taking into account
the military or university Professors. First of all, they are not part of the
civil service, so that you can actually retire form one, go work for the other
and retire again and get twice the salary while you are still working. Despite
what double dipper Russian said today, this can
not be done in the civil service system. But to make matters even worse, both
the military and the universities have their own pension requirements, which
may be as low as 20 years of service in the military and 25 for Professor’s,
with the added benefit that many times university Professors are given credit
for their pensions for the years they were doing Graduate work, or even for the
years they were TA’s at the University.

Think about it, if you graduate at 22 with a Bachelors and become a TA and
enroll in the Graduate program, you can be retired by the time you are 47. Your
salary will come out of the Universitys budget, requiring ever increasing
amounts of money from the budget and the Central Government.

In the long run, this is a recipe for disaster. No budget can support this
unless oil prices go up exponentially. Moreover, most of these people that
retire early go find another Government job, particularly the military and academics
who can retain their pension and their new salary.

Obviously this whole thing is ludicrous, more so when you think about the fact
that Venezuela
is a poor country with a GDP per capita just under US$ 4,000. Given the profile
of its population in terms of wealth, it makes no sense to have double dippers,
getting two salaries when under a more rational system they would be getting
only one salary and retiring later.

Remarkably enough, this structural problem had actually been solved by none
other than Teodoro Petkoff in the last two years of the Caldera administration.
As Planning Minister Petkoff got together with unions, the private sector and
the Government and created a consensus that this could not go on, that pensions
had to be funded and rational. Basically, there would be a new system after a
transition, whereby you could only retire at 60 years of age, if you had worked
for 35 years for the Government or the private sector and 65 years of age if
you had worked less than 35 years.

When Hugo
Chavez became President he held off applying the new law under the excuse that
the new Government had objections to the fact that the law allowed the private
sector to manage the pensions. Chavez gave a committee of his supporters six
months to rewrite the law. Then another six months. Then another six months and
that was the last we heard on this issue. Nothing has been done in seven years
on a problem that had been essentially solved.

The real
problem was not who would manage the funds. The real problem became the
academics who were both in the Chavez appointed committee and the Chavez
administration… They would be the ones most affected by the law, because most
of them would not be able to retire after 25 years, but would instead have to
wait until either 60 or 65 years of age. In fact, many of those that worked on
this problem left the Chavez administration in order not to lose their tenure
at their respective universities and be able to retire after 25 years of work. So
seven years have been wasted on a problem that was essentially solved.

I have
always been interested in this problem because the math never made much sense
to me and I saw how it undermined not only the budget of some of the institutions
where I worked in Venezuela,
but it would undermine their heart and soul also. I had friends in their mid-thirties
making plans for retirement at 45 so they could get another job. Their careers
became secondary to this sort of chess game of finding the shortest path to retirement
and legal double dipping.

However,
as so many things in Venezuela,
it is always difficult to get hard numbers of the situation at any Government
institution or university because of the ways the budget is revealed. However,
the Universidad Central de Venezuela, actually gave out the information to researchers
from Unesco and El
Nacional published a brief summary
of the data.

The
results are indeed scary. Universidad Central de Venezuela currently has some
50,000 students and seven thousand professors. At first glance this would
suggest there are seven students for each Professor. However, of the seven
thousand Professors, 41.9% are retired! Almost 3,000 of them get a pension that
comes straight from the ordinary budget of the university. This is unfunded and
whenever the active Professors get an increase, so do the retired ones,
including my fathers widow, who will get his pension until her death. He has
been dead for over a decade.

Clearly
this is no way to run a country. It is problems like this that need to be addressed
for the good of all Venezuelans. The current system only benefits the ones that
already have a job, at the expense of those that have very little. It does
sound indeed perverse to have people getting double salaries in a country with
so much poverty. To make matters even worse, the Chavze administration has
increased salaries at the top two or three jobs at most Government institutions
by factors of ten. When this happens, every single retired person, be it
Deputies of the National Assembly, Directors of the Central Bank, Directors of the
Electoral Board or Supreme Court Justices all have their pensions adjusted to
the new levels. The cost is enormous, at the expense of the needy. But at the
political level the silence on the issue is almost deafening, as those that
benefit from this perverse system, stay quiet in order to protect their potential
future and juicy pensions.

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