Are Pensions in Danger in Cuba?

Photo: El Toque

By Loraine Morales Pino (El Toque)

HAVANA TIMES – Elmer Labañinos Ramos is 67 years old and feels forsaken. A veteran from the war in Angola, he is one of the thousands of elderly Cubans that are unable to buy the basic essentials to get by. 

According to the most recent report on the social rights situation in Cuba, presented by the Cuban Observatory for Human Rights in 2022, only 20% of adults surveyed aged 65+ were able to get the medicines they need, over 60% were limited in their ability to buy basic products, and 18% were living in houses at risk of collapsing.

After the triumph of the Cuban Revolution in 1959, the universal pension system to support the elderly was presented as one of the social achievements of this process of change. Every person reaching retirement age would receive compensation that would give them financial autonomy.

The last six decades have proven the exact opposite. Today, pensioners in Cuba are neck-deep in a situation of insecurity and economic dependence that affects their physical and mental wellbeing and pushes them to go back to work – in the formal and informal sector – making them even more vulnerable.

In order to encourage a dialogue about Cuba’s demographic situation, Harvard University in the US and the Sorbonne-Nouvelle University in Paris held an academic meeting called “The social crisis in view of challenges of caregiving and aging in Cuba.” The discussion led by researchers cast a new light on the pension problem in the Caribbean country.

An old crisis

Cuban demographer Sergio Diaz-Briquets, who has been an independent consultant in interdisciplinary projects focussing on socio-economic development, explained that the pension system refers to an accumulated fund of pensions at a nationwide level to pay for pensions; which acts as a reserve and is nourished with contributions from economic actors in the country.

The researcher points out that it’s necessary to remember that in an economy and social welfare system dependent on foreign assistance like in Cuba, this system is in crisis because the State is “bankrupt, in debt, without government or private reserves.”

Faced with shortages of private savings, except for housing, lots of elderly people need to go back to work – being reemployed – or turn to informal economic activities. In other cases, remittances are a palliative income, which is mainly used for domestic essentials.

In the case of pensions, the demographer explains that, given the absence of real retirement funds, the State “collects money” from contributions via taxes, “distributes it” to pensioners and makes up the difference “if necessary”.

The Cuban Government has implemented a series of measures to tackle the challenges posed by the aging demographic and the growing number of pensioners. Cutting public expenses and giving the family a main role in caregiving for the elderly are some of them.

However, Diaz Briquets wonders whether cuts are linked to absent resources, and believes that allocation of funds is a political decision. Proof of this? The expansion and investment in hotel infrastructure for tourism, which hasn’t stopped even during the COVID-19 pandemic.

Furthermore, Diaz-Briquets explained that the real value of pensions in 2020 plummeted compared to that recorded in 1989. Factors such as multiple markets and a growing deficit in the balance between expenses and revenue needed to pay out pensions have had an impact.

“As pensions haven’t been adjusted in keeping with inflation, their real value has dropped by 50%, on average, since 1989 and it isn’t even able to cover basic dietary needs, and as a result, pensioners are one of the poorest population groups,” a study by economist Carmelo Mesa-Lago concludes, which was published in Foro Cubano de Divulgacion magazine in November 2021.

Recent reports in Cuba’s independent media indicate that the surge in prices of basic goods has led to a greater devaluation of wages. According to estimates published by El Toque, pensions are now four times less the cost of 25 basic foods including pork, beans, milk, eggs, rice and cooking oil. 

According to the Ministry of Finance and Prices, there were 367,887 beneficiaries of social welfare and a 1,821,000 pensioners by the end of 2022. Even when the amount of a pension varies depending on the economic sector, the minimum pension is set at 1,528 pesos (today less than 10 USD).

This situation is made worse if we bear in mind the fact that a retirement boom is expected in Cuba in a couple of years, which contrasts with the low utilization and incorporation of the workforce today. Without taxes and productivity, it will become harder and harder to guarantee pensions.

Nevertheless, while it’s true that the number of social security beneficiaries has risen since 2000, the same can’t be said for pensions, according to statistics from the National Institute of Social Security. If Cuba’s demographic structure is aging, why are they lowering the retirement age? Some possible answers might be leaving work before retirement age and informal jobs. 

Addressing gender-related differences, Juan Carlos Albizu-Campos Espiñeira, demographer and tenured professor at the Center for Studies on the Cuban Economy at Havana University, pointed out that it’s mostly women that leave work prematurely so they can take on caregiving responsibilities.

“There will be women who don’t complete their normal economic life cycle when they reach retirement age. Plus, their possible reincorporation – once they no longer have to be a caregiver – will be less efficient because they left their careers at a time when their wages could have grown and so they retire in worst conditions,” Albizu- Campos explains.

Possible alternatives

According to Diaz-Briquets, an alternative is to increase the management efficiency of the pension system, but he doesn’t believe that this is a virtue of the Cuban Government or within their capacity. Proof of this? “The deterioration of healthcare facilities and healthcare infrastructure, the declining availability of medical personnel and support and labor migration to other economic sectors, and abroad, a lack of medicines and other basic supplies in the health sector.”

Other social problems that affect people aged 65+ are high consumption levels of toxic substances such as alcohol and tobacco, a lack of balanced diets and physical exercise that guarantee better quality of life.

On the other hand, reducing the dependency of the elderly on public assistance is a challenge. The elderly in Cuba don’t have real savings and measures implemented by the State to increase retirement funds, such as increasing the retirement age and taxes for different economic sectors, didn’t have the expected result. As a result, a dignified retirement isn’t on the cards in the near future.

One of the ways out of this predicament that the Cuban Government has found is to delegate caregiving responsibilities to the family space, holding onto cultural traditions.

Diaz-Briquets explained that there are “few viable alternatives in the short and medium-term to boost caregiving systems,” and so he believes that the elderly’s needs will be more pressing with the retirement boom.

Carmelo Mesa Lago also said he felt pessimistic about the pensions issue in Cuba. After five years studying and following the phenomenon, he believes that labor reform implemented in 2009  “fell short”, as a “great political problem” is being created with accelerated population aging.

According to the academic, the retirement age in Cuba is one of the lowest in Latin America and, given the fact that the average age of people living after retirement is one of the highest in the region, he proposes that both men and women should work until 65 years old and that the retirement age gradually increases over the next two decades.

However, proposals for change to the current law also need to bear in mind the living conditions of Cuban workers, including the cost and efficiency of public transport, the cost of having children – food, clothes, shoes, hygiene items -, working conditions, multiple health ailments; to only mention some of the most pressing.

Clearly there is a pension crisis in Cuba. The solution won’t come without structural changes. As Mesa-Lago said, nobody knows “where the money is going to come from” to pay for retirement once the baby boom becomes the retirement boom.

Read more from Cuba here on Havana Times.