## tarea2024043 ## Source details **Canonical URL:** [tarea2024043](https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024043.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2024/english/tarea2024043.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2024/english/tarea2024043.pdf.json) --- ### Mission and purpose; officials and support - Mission dates: visited San Jose between May 17 and 31, 2023. - Mission composition: - Csaba Feher (FAD, mission head); Julieth Pico Mejia (FAD); Christoph Freudenberg (expert); Ivania Garcia Cascante (WHD). - Purpose: assess the recent proposal to a universal basic pension (PBU) and estimate its fiscal and welfare impact on the budget, on pension schemes, and on old age income poverty. - Logistical and analytical support: Marco Solera Rodriguez; Jimena Urena Morales (Ministry of Finance); Santiago Acosta Ormaechea (IMF Resident Representative in Costa Rica); FAD staff assistants Ms. Yara Vasquez and Mr. Daine Hale. ### Demographic trends, labor market and coverage implications - Demographics and data: - UN Population projections (2022 vintage) used; based on 2011 census and technical projections. - Around close to 7 percent of the population are migrants from the region. - Over 80 percent of the population live in urbanized areas. - Informality and labor: - 2021 informality rate: 27.6 percent of workers; LAC regional average: approximately 56 percent. - Informality higher among ages 15-24 and 55-65, reaching levels as high as 30 percent. - Formality among the self-employed is around half the level among employees. - Formality has been rising among employees but trending downward among the self-employed; overall informality levels remained similar. - Elderly labor force and pensions: - Around one-fifth of the population aged 60 and above are part of the labor force. - Approximately 42 percent of those aged 60 and above benefit from pensions stemming from previous work. - Unemployment rates among individuals aged 60 and above are less than half of the national unemployment rate. - Average gross labor income for those aged 60+ is similar to the national average. - Around 27 percent of the population aged 60 and above lacks any source of income despite high coverage of the non-contributory pension. - ECLAC (2021): one out of every two adults over age 65 in the poorest 20 percent either lacks access to a pension or receives a pension that falls below the poverty line. - Pension coverage (population aged 65 and over): 51 percent receive a contributory pension; regional average 52 percent; Central American countries average 24 percent contributory coverage. - Household composition with older adults: - Old adults living in poverty: around 3.7 percent of total population. - Non-poor old adults: 9.9 percent of total population. - Households with at least one older adult: average number of individuals aged 15-64 = 1.3; households without older adults: 2.5. - Only one-third of household members are employed in households with elderly members, versus 44 percent in households without older adults. ### Structure of the pension system and institutional arrangements - Multi-pillar structure: - First pillar: mandatory, earnings-related defined benefit schemes (IVM by CCSS; RCC for teachers; FPJ for judiciary; other small occupational schemes). - Second pillar: mandatory fully funded defined contribution schemes (since 2001) for dependent employees; contributions collected by CCSS centralized system; 1.3 million active contributors; total assets = 20 percent of GDP. - Voluntary options: voluntary registration with CCSS often at lowest contribution base; small voluntary DC pillar exists but is insignificant. - Noncontributory pillar: means-tested social pension (RNC) for people without labor or pension income living in poverty (age 65+ eligibility). - Institutional responsibilities: - Superintendencia de Pensiones (SUPEN), Ministry of Labor and Social Security (MLSS), and CCSS jointly responsible for pension policy and regulation. - CCSS has broad independence (can set contribution rates, retirement ages, benefit calculation, indexation, etc.). ### Financing, investment constraints, and reserves - Investment composition of major first-pillar reserves (three largest schemes ≈ 17 percent of GDP): - IVM portfolio: 94.3 percent in government bonds, central bank notes, fixed income and equity instruments issued by state-owned enterprises and public corporations. - RCC portfolio: 86.6 percent in such instruments. - FPJ portfolio: 74.1 percent in such instruments. - Capital market constraints: - Limited securitized, liquid, tradable domestic assets other than public debt constrains diversification. - Overseas investments face reconciliation challenges with monetary and exchange rate policies. - State contribution and arrears: - State contribution rate currently: 1.57 percent (paid at same rate to all schemes); from 2029 state contribution to IVM set to increase to 1.91 percent. - State contribution arrears amount to close to 20 percent of IVM reserves and 1.4 percent of GDP. - Government’s total debt to CCSS: 5.6 percent of GDP (76 percent owed to health insurance fund; 24 percent due to IVM). - Accounting treatment ambiguous: CCSS invoices monthly state contribution claims; Ministry of Finance refuses to accept invoices as valid; auditor general’s office has repeatedly called on government to settle contribution arrears. ### IVM specifics, parametric changes and baseline solvency projections - Contributors and contribution bases: - 1.47 million workers contribute with some regularity to IVM = 62.6 percent of the labor force and 70 percent of people in employment. - Number of workers who contributed at least once in 2022: approximately 1.7 million. - Minimum contribution base generally equal to minimum wage (exceptions for certain self-employed with presumptive bases). - Contribution rates: - Current contribution rates: employer 5.42, employee 4.17, state 1.57. - By 2029 these will reach: employer 5.75, employee 4.50, state 1.91. - Parametric and eligibility changes: - Normal retirement age: 65 for men and women. - Early retirement tightened: for men early retirement no longer available from 2023; for women early retirement reduced to 2 years earlier (from previous 5 years earlier with sufficient contributions). - Reserve exhaustion: IVM set to exhaust reserves in the mid2030s; IMF projection: reserves depleted by 2034 in baseline (sensitive to amount of government debt owed to CCSS; if CCSS estimate of state debt paid in 2023, reserves depleted three years later). - Expenditure trajectory: - IVM pension expenditures projected to rise from 3.3 percent of GDP in 2022 to 4.2 percent of GDP by 2040, with deficits rising further thereafter. - Main expenditure driver: doubling of elderly population (65 and older) in 2022-2042. - Accrual and replacement: - For an average contributor replacement rate = 52 percent. - Accrual schedule change from 2024: accrual rate lowered from 2.2–2.6 percent per year (first 20 years) to 1.7–2.1 percent per year (first 25 years). - Reform reduces replacement rates for an average contributor by around 11 percent; for total population of new retirees reform decreases replacement rates by about 7 percent. - Minimum pension and indexing: - Minimum pension: 142,517 CRC monthly in 2022. - Indexation: reference wages valorized with prices (not productivity); benefit indexation not automatic. ### Teachers (RCC) and judiciary (FPJ) schemes—status and projections - RCC: - Contributory, defined benefit, fully funded scheme established 1992. - Membership: approximately 150 thousand teachers in schemes, 103 thousand contribute to RCC; RTR continues with ~47 thousand pre-1993 members. - Annual expenditures for the closed teachers` scheme: 650 bn. CRC in 2022. - RCC reserves amounted to 9 percent of GDP at end-2022. - RTR obligations financed by budget will decline slowly for another 35-40 years. - RCC expected to exhaust own reserves after 2070 (income used only mid-2030s). - FPJ: - Members: 13.9 thousand contributors; 2.9 thousand beneficiaries. - Reserves: 1.6 percent of GDP in 2022. - FPJ projected exhaustion in the 2050s; building up reserves over next decade. - Taxation and deductions: - Health contribution of 14 percent paid by all schemes to CCSS-managed health insurance fund. - Progressive “normal contribution” (effectively a tax on pensions) with rates between 8.75 and 16 percent. - “Solidarity contribution” deducted from pensions above eight times the base wage of lowest-paid Public Administration position. - Total deductions limited to 50 percent of benefits. ### Noncontributory regime (RNC): design, coverage, issues - RNC eligibility: age 65+, no labor income, not receiving contributory or other pension, living in poverty (per capita equivalent income below poverty line). - Benefit level: monthly transfer CRC 82 thousand and Christmas bonus of same amount; annual benefit corresponds to 69 percent of per capita urban poverty line. - Targeting performance: - RNC relatively well-targeted: 62.5 percent of benefits reach households in first three deciles. - In 2022 approximately 65 percent of poor old adults were not covered by any social program. - 2022 RNC spending: about 0.4 percent of GDP financed by FODESAF. - RNC waiting list: around 23 thousand people in 2022, translating into unmet benefit obligations of around 0.1 percent of GDP in 2022. - By law a minimum of 10.35 percent of overall FODESAF resources must be transferred to RNC; in 2022 transfer stood at approximately 25 percent. - Government plan: increase coverage of RNC by an additional 5,000 beneficiaries (4 percent of current recipients) per year over next four years. ### SINIRUBE targeting infrastructure and performance - SINIRUBE single registry: - Covers approximately 80 percent of population; consolidates administrative data from 18 public institutions. - Around 55 percent of individuals have income information from administrative data; for remaining 45 percent a machine learning algorithm predicts income. - By law, institutions granting social benefits must consult SINIRUBE to determine eligibility. - 2022 performance: - Used to select 110,000 recipients of Bono Proteger: approximately 72 percent of beneficiaries were successfully identified and received transfer. - Inclusion and exclusion error of SINIRUBE estimated at 23 percent. - Potential uses: simulate benefit uptake, fiscal and welfare impact under reform scenarios and enable coverage extension at relatively low cost. ### Universal Basic Pension (PBU) — design summary - Eligibility: universal benefit payable to every citizen above retirement age with at least 40 years of residence in Costa Rica. - Benefit level: defined at 63 percent (also presented as 62 percent in other sections) of the poverty line excluding the Christmas bonus (CRC 82 thousand vs CRC 132 thousand). - Funding target: at least 1 percent of GDP allocated to PBU, split between paying current benefits and building a PBU reserve; envisaged PBU resources of 1 percent of GDP mainly financed by RNC resources transferred to PBU and by a state contribution. - Starting/funding figures (based on 2022 data): - Itemized CRC billion: - 3% of a monthly base (= 2 x urban poverty line) paid for those who become eligible for the PBU: 133 - Mandatory and solidarity contribution: 29 - 15 % of the net profits of SOE's: 34 - RNC resources: 167 - 50% of Art. 5 Banco Popular: 3 - Total: 366 billion CRC, corresponding to 0.8% PBU FINANCING ESTIMATE in % GDP of 2022. - SUPEN financing approach suggests current financing (1 percent of GDP) based on actuarial estimates to make PBU fully funded after full roll-out in mid-2050s; about 20 percent of allocated financing remains undefined. - Implementation pace: - Gradual: universality achieved only for cohorts for which PBU contributions were made by the state; PBU becomes universal only in the 2050s at the earliest for newly retiring cohorts. - Proposal administration: CCSS as separate, partially funded scheme with reserves segregated from IVM. - Target funding ratio for CCSS set at 70 percent (measurement method not defined). - Substitution effects: - PBU would gradually replace RNC and the contributory minimum benefit of first-pillar schemes. - Contributory minimum: top-up to raise pension to 22 percent of GDP per capita for people with at least 180 months of contribution. - RNC: uniform means-tested transfer at 12 percent of GDP per capita. ### PBU fiscal mechanics, scenarios and key projections - Prefunding vs fiscal consequences: - Making PBU fully funded limits scheme capacity to address poverty in near term and increases overall financing needs; creates potential increases in reported public debt without new financing sources. - PBU proposal’s additional financing need for reserve accumulation approximately 0.6 percent of GDP. - Government plans to transfer 1 percent of GDP annually to the PBU scheme to build reserves; over next 30 years these revenues expected to exceed PBU expenditures allowing reserve buildup. - Two scenarios analyzed: - Gradual “PBU proposal” scenario: phased expansion 2024–2054; PBU fully universal around 2090. - “Immediate PBU” scenario: PBU universal in 2024 for all elderly except those receiving pensions charged to national budget. - Gradual PBU Reform fiscal effects (change relative to baseline, percent of GDP): - Pension expenditures: 0.0% (2022), 0.0% (2030), 0.2% (2040), 0.4% (2050), 0.6% (2060), 0.6% (2070), 18% (2022-2070). - Of which PBU: 0.0% (2022), 0.4% (2030), 0.6% (2040), 0.8% (2050), 1.3% (2060), 1.6% (2070), 35% (2022-2070). - IVM expenditures: 0.0% (2022), -0.1% (2030), -0.1% (2040), -0.1% (2050), -0.3% (2060), -0.6% (2070), -5% (2022-2070). - RNC expenditures: 0.0% (2022), -0.3% (2030), -0.3% (2040), -0.3% (2050), -0.4% (2060), -0.4% (2070), -11% (2022-2070). - Pension revenues*: 0.0% (2022), 0.2% (2030), 0.1% (2040), 0.1% (2050), 0.1% (2060), 0.1% (2070), 5% (2022-2070). - Government Financing: 0.0% (2022), 0.2% (2030), 0.1% (2040), 0.1% (2050), 0.1% (2060), 0.1% (2070), 5.0% (2022-2070). - Of which PBU transfers: 0.0% (2022), 1.0% (2030), 1.0% (2040), 1.0% (2050), 1.0% (2060), 1.0% (2070), 30% (2022-2070). - State contributions (net effect): 0.0% (2022), -0.5% (2030), -0.5% (2040), -0.6% (2050), -0.6% (2060), -0.6% (2070), -19% (2022-2070). - Memorandum: PBU reserves: 0.0% (2022), 5.0% (2030), 11.3% (2040), 17.1% (2050), 21.2% (2060), 21.1% (2070). - Under gradual PBU scenario IVM reserves depleted: 2030 (projection reported). - Immediate PBU scenario: - Immediate universal PBU in 2024 would cost around 1.3 percent of GDP in introduction year. - Proposed immediate financing sources: RNC transfers ~0.4 percent of GDP; other revenues ~0.2 percent of GDP; fiscal gains from reducing state contributions ~0.4 percent of GDP — still insufficient. - Under immediate introduction IVM reserves depleted: 2039 (reported under that scenario). - Net long-term effect: - Net additional long-term pension expenditures to be financed: 0.6 percent of GDP. - Annual PBU financing of 1 percent of GDP can be partially covered by redirecting 0.5 percent of GDP from first-pillar state contributions and 0.3 percent of GDP from RNC revenues; remaining financing gap ~0.2 percent of GDP. ### Welfare, distributional effects and poverty impacts - Coverage and targeting outcomes: - As PBU reaches full coverage older adults are evenly distributed across income distribution; only 33.4 percent of PBU resources expected to go to poor older adults once fully phased in. - Starting in 2033, when non-poor older adults begin to receive PBU benefits, redistributive effects will erode. - Replacement and adequacy: - PBU benefit level (CRC 82,000 monthly; 69 percent of urban poverty line) is insufficient as a basic income to prevent poverty for many households given household compositions. - For average contributor replacement rates only minor impact on average expected replacement rates because combined benefit cannot be lower than current rules including contributory minimum; new reference earnings calculation may decrease replacement rates by about 2 percent for average wage earner. - Share of retirees for whom PBU benefit lower than minimum pension top-up: small (about 4 percent of minimum pension recipients or 1 percent of overall pensioners who retired in 2021 and 2022; simulated share about 5% for total new retirees). - Poverty impacts and cost-effectiveness: - PBU expected to take around nine years to achieve full coverage among older adults currently living in poverty, reducing old adult poverty headcount by at most 6.5 percentage points (projected by 2032). - Proposed transfer corresponds to 13 payments of CRC 82,000 each (≈69.2 percent of urban poverty line and 89.6 percent of rural poverty line in 2022). - Alternative use of 1 percent of GDP: - Prioritizing households with older adults with transfers equal to urban poverty line could eradicate poverty among older adults and reduce overall poverty headcount by 10.6 percentage points (from 25.5 percent to 15 percent). - Cost comparison: total PBU budget allocation 2024–2030 = 7 percent of GDP; cost of introducing PBU ≈ one-third of additional spending needed to achieve SDGs in five sectors by 2030. - Quantitative scenario snapshots (selected): - Baseline: Poverty headcount 18%; Poverty gap 88,787; p90/p10 27.0; Additional cost % of baseline 0.0%. - PBU immediately: Program coverage 65+ = 94%; Average monthly transfer (2022 prices) 88,787; p90/p10 20.5; Additional cost % of baseline 330%. - PBU gradual (impact in 2032): Poverty headcount 27%; Poverty gap 88,787; p90/p10 20.5; Additional cost % of baseline 150%. - Increase RNC coverage (target poor 65+): Poverty headcount 27%; Average monthly transfer 88,787; Additional cost % of baseline 47%. - Increase RNC coverage and raise transfer to urban poverty line: Average monthly transfer 139,107; Additional cost % of baseline 147%. - Reported illustrative impacts: - Additional expenditure 0.6% GDP → Poverty headcount -6.5 → P90/P10 -1.7. - Additional expenditure 1.0% GDP → Reduction poverty headcount -6.5 → Reduction P90/P10 -1.5. - Additional expenditure 0.5% GDP → Poverty headcount -15.2 → P90/P10 -3.2. ### Risks, assessment and open issues with PBU proposal - Major incompleteness and open issues: - Missing or unclear: timing and pace of introduction, first cohort impacted, long-term fiscal and welfare analyses, integration with other social programs, treatment of disability, measurement method for funding ratio. - Draft PBU Bill/explanatory note unclear whether objective is preventing old age income poverty or ensuring every elderly person receives some pension. - Incentive and compliance risks: - Universal PBU conditioned only on citizenship and residence likely to undermine coverage and compliance in contributory schemes, especially for individuals with less than 180 months of contributions who could receive benefit irrespective of contribution length. - Countries that maintain universal pensions alongside broad contributory coverage typically use complex tapering and eligibility rules to limit disincentives; proposal is silent on such mechanisms. - Residence criterion: - 40 years residence requirement is strict and may necessitate alternative targeted old-age income support for those failing the residence requirement. - Financing and solvency risks: - Prefunding via transfers from first-pillar schemes accelerates reserve depletion of first-pillar schemes and creates contingent fiscal risks likely to be underwritten by government. - Prefunding PBU by accumulating reserves invested mostly in public debt represents no additional source of financing and may create double-financing problems. - Adequacy concerns: - Proposed benefit level insufficient to prevent poverty for many elderly in the near term; for short careers PBU may be lower than current contributory minimum top-up. - Distributional erosion over time: - Once PBU reaches non-poor elderly, only about 33.4 percent of resources will reach poor older adults; redistributive effect declines as coverage expands. ### Key recommendations and policy options - Alternatives to universal PBU: - Prioritize expanding coverage in IVM and RNC; greater coverage by RNC promises greater and less costly anti-poverty impact than PBU given administrative capacity and databases. - Option to extend RNC coverage to all elderly living in poverty immediately would cost 0.1 percentage points of GDP in 2023 — approximately one-third of additional spending allocated to gradual PBU scenarios. - If expanding RNC and increasing transfer to urban poverty line (CRC 128,406), poverty among older adults could be reduced by half; implementation would require public spending increase of 0.5 percent of GDP (equivalent to annual additional PBU allocation). - Revenue administration and compliance: - Revenue administration comprehensive review recommended to improve monitoring, collection and enforcement of income taxes and social security contributions. - Improve information exchange between tax department and CCSS; reconcile registries and cross-check tax and contribution records. - Consider collecting wage and income tax returns from all employees and self-employed irrespective of income levels. - Reduce retroactive payment obligation for self-employed registering late with CCSS (recommendation to reduce to one year mentioned in policy options). - Pension system parametrization and governance: - Consider reducing minimum contribution history (vesting) in IVM (for instance to 12 instead of 180 months) while keeping it as condition for contributory minimum pension; increases coverage but raises future expenditures. - Make participation in second pillar mandatory for self-employed or consider auto-enrollment. - Commit to eliminating RNC waiting list within defined timeframe and amend eligibility so receiving RNC benefit doesn’t prevent other elderly household members receiving same benefit. - Legislate backward-looking, automatic price indexation of pension benefits to maintain real value. - Change valorization indicator from prices to wages or revise accrual rates to more transparently achieve desired starting pension levels. - Introduce early retirement penalties reflecting combined lifetime impact and increase marginal replacement rates for years beyond normal retirement age to incentivize delayed retirement. - Clarify division of responsibilities across parliament, government and CCSS; consider concentrating policymaking/regulation in MLSS and limiting CCSS powers to enforcement and interpretation. - If proceeding with PBU, consider design options: - Increase eligibility age relative to normal retirement age for people without contributory benefit (example: by 5 years) to introduce scheme faster or at lower cost and use savings to expand coverage among elderly. - Operate PBU as a tax-financed scheme without pre-funding to avoid double-financing and prefunding complications. - Expand PBU coverage to people with disabilities who meet IVM disability pension eligibility but lack access due to insufficient contribution histories. - Legislative and procedural safeguards: - Require long-term fiscal and welfare impact analyses to accompany regulatory amendments affecting public pension finances. - Enact mandatory offsetting: proposals increasing government obligations or reducing revenues should be accompanied by offsetting proposals. ### Modeling approach and main assumptions (projection model) - Model: dynamic cohort simulation; micro-simulations for distributional impact. - Base year: 2022. - Demographic assumptions: UN World Population Prospects 2022 (Medium Variant). - Main macro/technical assumptions: - Inflation: 3 % in the long-term. - Wage Growth, in real terms: 2 % in the long-term. - GDP Growth: IMF estimates until 2028, wage + employment growth thereafter. - Discount Rate, in real terms: 3.50%. - Rates of Return of Reserve Funds, in real term: 3.50%. - Employment and Participation Rates: 2022 Rates. - Pension indexation: only minimum pensions and pensions charged to state budget indexed with wages; general indexation rules discretionary. - Data sources and limitations: - Administrative data provided by authorities; micro data covering pension levels and historic contribution variables of 20,000 retirees; micro simulation based on careers of 20,000 non-retired IVM members. - Lack of up-to-date INEC projections and unavailable mortality info for IVM members noted; last publicly available INEC population projection from 2018. *IMF Technical Assistance Report | tarea2024043* ### Preface ____________________________________________________________________________6 ### Preface ### Mission and Purpose - At the request of the Ministry of Finance, a mission from the International Monetary Fund visited San Jose between May 17 and 31, 2023. - Mission composition: - Csaba Feher (FAD, mission head) - Julieth Pico Mejia (FAD) - Christoph Freudenberg (expert) - Ivania Garcia Cascante (WHD) joined from the IMF’s local office. - Purpose: to assess the recent proposal to a universal basic pension and to estimate its fiscal and welfare impact on the budget, on pension schemes, and on old age income poverty. ### Officials and Institutions Met - Ministry of Finance: Norman Pérez Castro; Porfirio Rojas Fajardo; Evelyn Gabriela Robles Guzmán; Antonieta Salas Araya. - Ministry of Labor and Social Security: Hazel Fallas Murcia; Mauricio Corrales Alvarado; Luis Alberto Avalos Rodríguez; Héctor Acosta Jirón. - Caja Costarricense de Seguro Social (CCSS): Claudio Arturo Arce Ramírez; Ubaldo Carrillo Cubill; Luis Diego Calderón Villalobos; Carolina González Gaitán; Evelyn Rocío Guzmán Solano; Jaime Barrantes Espinoza; Olger Mauricio Pérez; Pérez, Ubaldo Carrillo Cubillo; Allan Josué Quesada Soto. - Fondo de Jubilaciones y Pensiones del Poder Judicial: Oscar Cortes Naranjo; Oslean Mora Valdez; José Andrés Lizano Vargas. - Junta de Pensiones del Magisterio Nacional: Seidy Álvarez Bolaños; Errol Pereira Torres; José Antonio Segura Meoño; Carlos Arias; Gilberth Díaz; Sonia Hernández Sánchez; Gilda Montero Sánchez; Harold Chavaría Vásquez. - Superintendencia de Pensiones: Rocío Aguilar Montoya; Adrián Pacheco Umaña; Guillermo Matamoros Carvajal; Nelly Vargas Hernández; Mauricio Soto Rodríguez; Rafael Chavarría Delvó. - Instituto Mixto de Ayuda Social (IMAS): Jafeth Soto Sánchez; Lucía Astorga Gomez; Paola Guiselle Barquero Araya. - Contraloría General de la República: Juan Ernesto Cruz Azofeifa; Julissa Sáenz Leiva; Dayanna Leiva Perez; Gonzalo Elizondo Rojas. - Sistema de Integración de Bases de Datos (SINIRUBE): Oscar Weathley Williamson; Natalia Rojas Canales; Marlon Cruz Villalobos. - Asociación Costarricense de Operadores de Pensiones (ACOR): Danilo Ugalde Vargas. - Instituto Nacional de Estadísticas y Censos de Costa Rica (INEC): Olga Martha Araya Umaña; Eddy Madrigal Méndez; Braulio Villegas González. - Banco Popular: Bernal Loría Arce; Reinaldo Soto Arias. - Vida Plena: Porfirio Rojas Fajardo; Alejandro Solórzano Mena. - Universidad de Costa Rica: Edgar Robles Cordero. ### Logistical and Analytical Support - The mission expressed appreciation for committed logistical and professional support from Marco Solera Rodriguez and Jimena Urena Morales (Ministry of Finance). - The mission’s work relied on support and insights from Santiago Acosta Ormaechea, the IMF’s Resident Representative in Costa Rica. - Report production facilitated by FAD staff assistants Ms. Yara Vasquez and Mr. Daine Hale. *IMF Technical Assistance Report | Preface (tarea2024043)* ### 2030. These demographic developments have a profound fiscal and welfare impact for the contributory ### tarea2024043 - 2030. These demographic developments have a profound fiscal and welfare impact for the contributory ### Demographic trends and fiscal/welfare implications - UN Population projections (2022 vintage) are used, based on 2011 census data and technical projections. - Demographic developments have a profound fiscal and welfare impact for: - contributory pension schemes, - the social assistance system (including noncontributory income security for the elderly), - and the state as the ultimate underwriter. - Figure referenced: "Old-age support ratio and the share of elderly population, 1980-2100" (Source: UN Population Prospects, 2022). ### Migration and urbanization - Around close to 7 percent of the population are migrants from the region. - Over 80 percent of the population live in urbanized areas. ### Labor market conditions and informality - Costa Rica has low informality rates relative to LAC: - In 2021, 27.6 percent of workers were categorized as informal. - Regional average across LAC countries is approximately 56 percent. - Informality by age: - Higher among ages 15-24 and 55-65, reaching levels as high as 30 percent. - Informality and wages/income distribution: - Roughly one-third of poor workers can be considered formal. - Four out of five workers in the top 60 percent of the income distribution are formal. - Formality by employment type: - Formality among the self-employed is around half the level among employees. - Formality has been rising among employees but trending downward among the self-employed; overall informality levels have remained similar. - Sources for figures: - LAC Equity Lab tabulations of SEDLAC (CEDLAS and the World Bank). - IMF staff calculation based on Encuesta Continua de Empleo (ECE) 2011-2022. ### Elderly labor force participation, pensions, and coverage - Labor force and pensions among those aged 60 and above: - Around one-fifth of the population aged 60 and above are part of the labor force. - Approximately 42 percent of this age group benefit from pensions stemming from previous work. - Unemployment rates among individuals aged 60 and above are less than half of the national unemployment rate. - The average gross labor income for this age group is similar to the national average. - Around 27 percent of the population aged 60 and above lacks any source of income, despite high coverage of the non-contributory pension. - Poverty among elderly (ECLAC, 2021): - One out of every two adults over age 65 in the poorest 20 percent either lacks access to a pension or receives a pension that falls below the poverty line. - Pension coverage (population aged 65 and over): - 51 percent receive a contributory pension (slightly below the regional average of 52 percent). - Central American countries average 24 percent contributory pension coverage. - Distributional aspects of contributory pensions: - Less than 30 percent of adults over 65 who receive a pension from contributory regimes are poor. - Contributory pension benefits represent 7.9 percent of the total (presumably of elderly income). - Pensions represent 14 percent of household income for the wealthiest households and 8 percent for the poorest households. - Most elderly without a pension (around 70 percent) are not poor. - Source for contributory/non-contributory pension distribution: IMF staff calculation based on Encuesta Nacional de Hogares (ENAHO 2022). ### Household composition and income sources for elderly - Old adults living in poverty: - Account for around 3.7 percent of the total population. - Non-poor old adults represent 9.9 percent of the population. - Household composition differences: - Households with at least one older adult: average number of individuals aged 15-64 is 1.3. - Households without older adults: average number aged 15-64 is 2.5. - Households with older adults on average have fewer children and young individuals. - Only one-third of household members are employed in households with elderly members, versus 44 percent in households without older adults. - Female-headed households are more prevalent among poor households, regardless of presence of older adults. - Reliance on non-labor income: - Households with elderly members rely more on non-labor income sources. - Non-contributory pension prevalence: - People aged 65 and over represent the majority of beneficiaries of non-contributory pensions; prevalence of other social program benefits among this population is extremely low. - Table referenced: "Table 1. Household and individual characteristics people aged 65 and over by poverty condition" (Source: IMF staff calculation based on ENAHO 2022). ### Social protection targeting and coverage - Government expenditure composition (2018 reference): - Approximately one-half of government expenditure was allocated to universal education and health services. - Government expenditure on Social Protection accounted for only 1.5 percent of GDP. - Two-thirds of Social Protection spending went to social pensions and unconditional cash transfer programs. - Impact of cash transfers (including the social pension): - Contributed to a 4.4 percentage point reduction in extreme poverty. - Contributed to a 2.6 percentage point reduction in poverty. - Interpretation: transfers push people near the poverty line but often fall short of helping people escape poverty. - Undocumented migrants are excluded from social protection services. ### Targeting infrastructure: SINIRUBE - In 2022, targeted social programs covered around 11 percent of the population. - SINIRUBE single registry: - Covers approximately 80 percent of the population. - Collects and consolidates administrative data from 18 public institutions (including CCSS and Ministry of Finance). - Around 55 percent of individuals in SINIRUBE have income information from administrative data. - For the remaining 45 percent, a machine learning algorithm (developed with MIT) predicts income based on household and individual characteristics. - By law, all institutions responsible for granting social benefits must consult SINIRUBE to determine eligibility. - SINIRUBE performance and errors: - Used in 2022 to select 110,000 recipients of Bono Proteger. - Approximately 72 percent of the beneficiaries were successfully identified and received the transfer. - Inclusion and exclusion error of SINIRUBE is estimated at 23 percent. - SINIRUBE can estimate benefit uptake and fiscal and welfare impact under reform scenarios and enable coverage extension at relatively low cost. ### Capital market constraints affecting pension reserves - Limited availability of securitized, liquid, and tradable domestic assets other than public debt constrains diversification of pension reserves. - Pension system includes funded schemes (defined benefit and defined contribution) and a public defined benefit social security scheme with reserves. - Private-sector securitized assets are very limited; private corporations finance themselves mostly from banking system and corporate treasuries. - Overseas investments face reconciliation challenges with monetary and exchange rate policies due to exposure to exchange rate volatility. ### Structure of the pension system (multi-pillar) - First pillar: - Mandatory, earnings-related defined benefit schemes. - Largest scheme: Invalidez, Vejez y Muerte (IVM) administered by CCSS; covers employees and self-employed except occupational first pillar scheme members and those eligible for budget-financed pensions. - Two additional occupational schemes: Regimen de Capitalización Colectiva (RCC) for teachers and Fondo del Poder Judicial (FPJ) for judiciary members. - Several small schemes pay occupational and merit pensions. - Second pillar: - Since 2001, mandatory fully funded defined contribution schemes for dependent employees (not open to self-employed). - Managed by financial sector service providers; contributions collected by centralized system under CCSS. - Voluntary options: - Voluntary registration with CCSS available (often for access to health services); voluntary participants typically contribute at the lowest permissible contribution base. - Small voluntary defined contribution funded pillar exists but is insignificant. - Noncontributory pillar: - Means-tested social pension available for people without other labor or pension income and living in poverty (available at retirement age for those in households with per capita incomes below the poverty line). - Institutional responsibilities: - Superintendencia de Pensiones (SUPEN), the Ministry of Labor and Social Security, and CCSS jointly responsible for pension policy and regulation. - CCSS has broad independence (can set contribution rates, retirement ages, benefit calculation, indexation, etc.). ### Financing and investment of first pillar schemes - First pillar schemes accepting new members are financed by employer, employee, and state contributions. - State contribution: - Paid at the same rate to all schemes (currently 1.57 percent). - From 2029, the state contribution to IVM is set to increase to 1.91 percent. - State contribution represents redistribution from those not covered by social insurance to those who are. - Pension reserves investment composition (three largest first pillar schemes totaling about 17 percent of GDP): - Invested predominantly in public sector securities. - IVM portfolio: 94.3 percent in government bonds, central bank notes, fixed income and equity instruments issued by state-owned enterprises and public corporations. - RCC portfolio: 86.6 percent in such instruments. - FPJ portfolio: 74.1 percent in such instruments. - No mandatory minimum investment in domestic public debt instruments, but market structure and limits on overseas investment lead to high shares invested in government debt. ### IVM specifics and sustainability challenges - IVM coverage and contributors: - Currently, 1.47 million workers contribute with some regularity to IVM. - This equals 62.6 percent of the labor force and 70 percent of people in employment. - Number of workers who contributed at least once in 2022 is approximately 1.7 million. - Contribution bases: - Workers expected to contribute at least on the basis of the minimum contribution base (equal to the minimum wage, except certain self-employed with presumptive bases). - Reserve exhaustion and parametric changes: - IVM is set to exhaust its reserves in the mid2030s. - Recent parametric changes and increases in contribution rates: - Current contribution rates: 5.42 (employer), 4.17 (employee), and 1.57 (state). - By 2029 these will reach 5.75 (employer), 4.50 (employee), and 1.91 (state). - Normal retirement age is 65 years for both men and women. - Early retirement eligibility tightened: - For men, early retirement is no longer available from 2023. - For women, early retirement reduced to 2 years earlier (from current rules permitting retirement 5 years earlier with sufficiently long contribution histories). - State contribution arrears and fiscal implications: - State contribution arrears amount to close to 20 percent of IVM reserves and 1.4 percent of GDP. - Government’s total debt to CCSS is 5.6 percent of GDP: - 76 percent of this debt is owed to the health insurance fund. - 24 percent is due to IVM. - Accounting treatment is ambiguous: - CCSS invoices and records monthly state contribution claims. - Ministry of Finance refuses to accept invoices as valid, partly to avoid explicit financial obligation affecting deficit and debt targets. - The auditor general’s office (Contraloría General de la República) has repeatedly called on the government to settle the issue of contribution arrears without much effect. *IMF Technical Assistance Report | Excerpts from the chapter provided.* ### 24. The second largest social security scheme is the teachers’ occupational scheme, covering ### tarea2024043 - 24. The second largest social security scheme is the teachers’ occupational scheme, covering ### Teachers’ occupational scheme (RCC) — design and fiscal position - RCC is a contributory, defined benefit, fully funded scheme established in 1992 to replace the previous scheme (Régimen Transitorio de Reparto – RTR). - Favorable financial position is partly due to scheme parameters and partly because obligations of RTR were assumed by the budget. - Annual expenditures for the closed teachers` scheme added up to 650 bn. CRC in 2022. ### Membership and transition dynamics (RCC and RTR) - Approximately 150 thousand members in teachers’ schemes, of whom 103 thousand contribute to RCC. - RTR continues collecting contributions from members from approximately 47 thousand people who joined before 1993. - Teachers with long service histories (at least 33 years) can retire anytime; contributions to RTR are expected to disappear from the scheme by the mid-2030s. - Benefit obligations of RTR will continue requiring slowly declining budget financing for another 35-40 years (including survivor benefits). - RTR is administered by the Dirección Nacional de Pensiones (DNP) under the MLSS and represents 75 percent of all scheme members receiving pensions through the department. ### Judiciary occupational scheme (FPJ) - Third, smallest occupational first pillar scheme serves the judiciary. - Membership comprises 13.9 thousand contributors and 2.9 thousand beneficiaries. - FPJ has high contribution rates and commensurately high gross benefit levels; main demographic pressure is improving life expectancy at retirement. - FPJ’s primary source of revenue is the budget, partly as employer contributions and partly as state contributions. - FPJ’s reserves stood at 1.6 percent of GDP in 2022. ### Taxation of pensions and deductions - A health contribution of 14 percent is paid by all schemes to the health insurance fund under CCSŚs management. - A progressive “normal contribution” (effectively a tax on pensions) is levied with progressive rates ranging between 8.75 and 16 percent. - A “solidarity contribution” is deducted from pensions above eight times the base wage of the lowest-paid position in the Public Administration. - RCC and FPJ pensions, on average, face larger deductions than IVM due to higher pension levels. - Total deductions are limited at 50 percent of benefits. - In RCC and FPJ, the health contribution is split between the pension scheme (8.75 percent), the beneficiary (5 percent), and the state (0.25 percent). - IVM is exceptional insofar as until now, the entire health insurance contribution was financed by the CCSS. ### Second pillar: mandatory defined contribution schemes (post-2001) - Second pillar introduced in 2001: mandatory, universal, contributory, fully funded, defined contributions. - Contribution rate: 4.25 percent of gross wages in total (3.25 percent employer, 1.0 percent employee). - Contributions, accruals, and pension benefits are income tax free. - Until 2020 beneficiaries could withdraw retirement balances in a lumpsum; since 2020 permissible withdrawal forms are life annuities and phased withdrawals. - Life annuity products are not available due to lack of an annuity market; second pillar cannot protect members against longevity risk. - Currently 1.3 million active contributors in second pillar schemes, with total assets of 20 percent of GDP. - Total accounts approximately 2.8 million; in 2022, 45.4 percent (1.27 million) received 12 monthly contributions. - Pension fund assets predominantly invested in domestic public debt; sector’s direct and indirect exposure to the public sector is over 63 percent. - Foreign investments limited at 50 percent of pension portfolios (to increase to 60 percent from 2024); largest overseas portfolio approximately 38 percent foreign securities. - CCSS administers registering and contribution collection for second pillar schemes; participation not possible without CCSS registration. - Private pension market is oligopolistic with 6 operators: 4 controlled by banks, 2 controlled by public entities (operating CCSS’s and RCC’s funded schemes). ### Noncontributory scheme (RNC) - RNC targets impoverished elderly: eligibility conditional on age (65 and older), having no labor income, not receiving a contributory or other pension, and living in poverty (per capita equivalent income below the poverty line). - Beneficiaries receive a monthly transfer of CRC 82 thousand and a Christmas bonus of the same amount. - Annual benefit corresponds to 69 percent of the per capita urban poverty line; only one person per household can receive the benefit. - RNC is relatively well-targeted: 62.5 percent of benefits reach households in the first three deciles of per capita disposable income. - In 2022, approximately 65 percent of poor old adults were not covered by any social program. - Government plan aims to increase coverage of the non-contributory regime by an additional 5,000 beneficiaries (4 percent of current recipients) per year over the next four years. - RNC is administered by Instituto Mixto de Ayuda Social (IMAS) and financed through Fondo de Desarrollo Social y Asignaciones Familiares (FODESAF). ### Key issues and considerations - Lack of coordination between the tax department and the CCSS leads to incomplete wage reporting and unreconciled returns, enabling under-reporting of earnings to CCSS. - Employees with earnings within the zero-income tax bracket are not reported by employers, leaving no tax records to cross-check CCSS contributions. - Under-reporting wages is less crucial for CCSS’s financial position insofar as future benefits reflect past contribution performance and CCSS can rely on budget topping-up for minimum contributory pensions. - Self-employed participation hindered by retroactive contribution payment requirements when registering with CCSS later than tax registration; retroactive period reduced from 15 years to 4 years. - Minimum contribution period for pension eligibility: 180 contribution periods (months) and contributions paid on at least the minimum contribution base (currently, CRC 306.4 thousand per months). - People with less than 180 months receive no pension and past contributions are absorbed into IVM’s current expenditures and reserves. - IVM reference wages are valorized with prices (not productivity), benefit indexation is not automatic, early retirement penalties absent for women, and deferred retirement insufficiently rewarded—weakening incentives to remain employed. - Portability across first pillar schemes is complex: pension payable by last scheme where retiree accumulated enough contribution periods; individual may be responsible for covering differences between present value of additional benefits and past transferred contributions, half payable at retirement and half via pension deductions. - Constitutional independence of CCSS grants operational independence but CCSS obligations are ultimately underwritten by the central government; CCSS regulations affect broader social policy (e.g., RNC eligibility relates to IVM retirement age). - Absence of full life annuities in insurance market means second pillar cannot insure longevity risk; policymakers may consider consecutive first and second pillar withdrawals (accelerated second pillar drawdown followed by deferred first pillar benefit). ### Baseline projection: approach and fiscal results - Projections cover all main public pension schemes in a no-policy-change scenario; current contribution and benefit regulations assumed unchanged for the projection horizon. - Base year for projections is 2022. - Model: dynamic cohort simulation described in Annex I; micro simulations used for distributional impact analysis. - Data limitations: reliability limited by data availability, especially for judiciary and younger teachers. - In 2022 IVM expenditures could not be financed by contribution revenues; interest income of reserves used to finance benefits. - In closed pension schemes charged to the State Budget (Treasury Pensions), only about 10 percent of gross expenditures covered by pensioner contributions; remaining share (1.7 percent of GDP) financed by the state budget. - RCC reserves amounted to 9 percent of GDP at the end of 2022 due to young age structure (103 thousand active affiliates vs. 3 thousand retired members). - FPJ reserves stood at 1.6 percent of GDP in 2022, explained by high contribution rates applied to Judiciary employees (29 percent). *Source: tarea2024043 - 24. The second largest social security scheme is the teachers’ occupational scheme, covering (IMF Technical Assistance Report).* ### 45. Expenditures for the non-contributory pension scheme in the base year are small ### Expenditures for the non-contributory pension scheme in the base year are small ### Current spending and program design - In 2022 about 0.4 percent of GDP have been spent for RNC pensions financed by transfers of FODESAF. - Low spending reflects: - Tight targeting criteria (only one elderly person per household can be eligible). - Underfunding that results in years’ of waiting time between qualifying and receiving the first benefit payments. - The RNC had a long waiting list of recipients adding up to around 23 thousand people in 2022, translating into unmet benefit obligations of around 0.1 percent of GDP in 2022. - State transfers to FODESAF: by law a minimum of 10.35 percent of overall FODESAF resources need to be transferred to the RNC scheme. In 2022, it stood at approximately 25 percent. ### State contributions to pension schemes (2022 and medium term) - The state contributed 0.5 percent of GDP to public pension schemes in 2022, in addition to standard employee and employer contributions. - Largest share transferred to IVM: 0.4 percent of GDP (used inter alia to top-up benefits to the minimum pension level). - The IVM state contribution will grow by about 35 percent until 2029 in line with the legislated state contribution rate increases. - The smaller FPJ and RCC schemes receive state contributions of about 0.05 percent of GDP in total (in addition to employer contributions also financed by the government). ### Projected pension expenditures and fiscal trajectory - IVM pension expenditures: projected rise from 3.3 percent of GDP in 2022 to 4.2 percent of GDP by 2040, with deficits rising further thereafter. - Main driver of expenditure growth: demographics — the number of the elderly population (65 and older) is doubling in the period 2022-2042. - Recent policy effects: - IVM benefit rule changes enacted in 2022 cushion expenditure growth. - Tightening of early retirement options from 2023 onwards lowers expenditures in 2030 by about 0.4 percent of GDP. - Under current rules IVM reserves will be depleted in the mid-2030s: - IMF projections: reserves depleted by 2034 resulting in the need to adapt expenditures and/or revenues thereafter. - This result is sensitive to the amount of government debt owed to the CCSS for outstanding past state contributions (still under discussion). Footnote: If the state debt according to the estimates of the CCSS is paid in 2023 to the IVM then the reserves would be depleted three years later than in our baseline. - Treasury pension regimes and state financing obligations: - Currently the state is obliged to spend around 0.5 percent of GDP for state contributions to different first pillar pension schemes. - Additionally, around 1.7 percent of GDP needs to be spent to finance pensions charged to the state budget annually. - As closed schemes phase out, expenditures and state financing obligations for these schemes will gradually decline to about 1 percent of GDP in 2040 and further thereafter, potentially creating long-term fiscal space while IVM finances are increasingly under pressure. ### Smaller pension schemes (RCC and FPJ) - RCC and FPJ projected trajectories: - RCC will only need to use income from its reserves in the mid-2030s, with an expected depletion of reserves only after 2070. - FPJ is building up reserves over the next decade, with an exhaustion expected in the 2050s. - These two schemes will continue to run surpluses in the coming years, with reserves over the next three decades. ### Replacement rates and accrual rules (IVM) - For an average contributor the replacement rate (starting pension relative to final earnings) adds up to 52 percent (based on a typical career observed in the IVM scheme). - Accrual schedule changes from 2024: - Currently first 20 years: accrual rate of 2.2 to 2.6 percent per year (depending on earnings levels). - From 2024 onwards: accrual rate lowered to 1.7 to 2.1 percent per year applied to the first 25 contribution years. - Reform reduces replacement rates for an average contributor by around 11 percent (see Table 4). - For low wage earners the reform shows little impact because benefit levels cannot fall below the minimum pension. - For the total population of new retirees, the reform decreases replacement rates by about 7 percent. - Accrual detail: For each additional contribution year, the accrual rate rises by 1 percentage point, for those with more than 240 contribution months. ### Universal Basic Pension (PBU) — Motivation and features - PBU design summary: - Universal benefit payable to every citizen above the retirement age with at least 40 years of residence in Costa Rica. - Benefit defined at 63 percent, excluding the Christmas bonus, of the poverty line (CRC 82 thousand vs CRC 132 thousand). - To function as a fully funded defined benefit scheme paying a flat (uniform) pension. - At least 1 percent of GDP is to be allocated to the PBU, split between paying current benefits and the build-up of a PBU reserve. - PBU resources of 1 percent of GDP shall be mainly financed by RNC resources transferred to PBU and by a state contribution for people who will receive a PBU benefit. - Envisaged PBU resources add up to around 0.8 percent of GDP in 2022. As a result, revenues of roughly 0.2 percent of GDP still need to be identified. - Implementation will be gradual: universality achieved only with respect to cohorts for which PBU contributions were made by the state; PBU will become universal only in the 2050s, at the earliest, and only with respect to newly retiring cohorts. - Replacement and substitution: - PBU would gradually replace the noncontributory social pension (RNC) and the contributory minimum benefit of first pillar schemes. - Contributory minimum: top-up for people with at least 180 months of contribution to raise pension to 22 percent of GDP per capita. - Social pension (RNC): means-tested transfer for those without pensions with uniform benefit at 12 percent of GDP per capita. ### PBU financing (items based on 2022 data) - Itemized amounts (billion CRC, based on 2022 data): - 3% of a monthly base (= 2 x urban poverty line) paid for those who become eligible for the PBU: 133 - Mandatory and solidarity contribution: 29 - 15 % of the net profits of SOE's: 34 - RNC resources: 167 - 50% of Art. 5 Banco Popular: 3 - Total: 366 billion CRC, corresponding to 0.8% PBU FINANCING ESTIMATE in % GDP of 2022. - SUPEN’s stated financing approach: - Current financing (1 percent of GDP) is based on actuarial estimates indicating reserve requirements to make the PBU fully funded after full roll-out in the mid-2050s. - Financing will include 3 percent of twice the poverty line per person covered, 15 percent of SOE profits, current RNC revenues, among others. - Approximately 20 percent of allocated financing is yet undefined; items such as SOE profit taxes imply significant uncertainties. - A portion of the state contribution to first pillar schemes would be redirected to PBU: today’s 1.57 percent of covered earnings state contribution would be replaced by a lower contribution equal to 0.75 percent of twice the poverty line per contributor. ### Expected effects on incentives and benefits - Replacing RNC and contributory minimum with PBU may lower incentives to comply with contributory schemes, particularly for individuals with less than 180 months (15 years) of contributions who could receive an old age benefit irrespective of contribution length. - For minimum wage earners: - Replacement rates do not change for those with 15 and more contribution years under PBU (because own IVM entitlements plus PBU benefit cannot exceed current rules). - For short careers the incentive to contribute further may be reduced under PBU. - PBU changes to pension calculation base in IVM: - Calculation base would be the contribution-rate-weighted average of employer and employee contribution base, and twice the poverty line. - Because the state contribution (and its base) are fixed amounts, higher earners’ pension calculation base (and benefits) will decline more relative to current rules than lower earners. - Effect varies by age since pensions will be calculated using different assessment bases for periods before and after launching PBU; older workers impacted less. ### PBU administration and funding target - PBU administered by CCSS as a separate, partially funded scheme with reserves segregated from IVM. - Proposal establishes a target funding ratio (assets to projected liabilities) for CCSS set at 70 percent. - If funding ratio declines below the target, measures (yet undefined) will be taken by CCSS to revert to the target; measures could include contribution increases or downward adjustments to the present value of IVM benefits (e.g., higher retirement ages, lower accrual rates, partial indexation of benefits, lowering benefit maxima, or contribution rate increases). - Note: The method of measurement for the funding ratio is not defined in the proposal. ### Assessment, risks, and open issues - The proposal is incomplete and lacks key details: - Time and pace of introduction, first cohort impacted, long-term fiscal and welfare analyses, and integration with other social welfare programs are not specified. - The draft PBU Bill and explanatory note do not clarify whether the government objective is preventing old age income poverty or ensuring every elderly person receives some pension. - Short-term effectiveness and coverage: - In its current form PBU is unlikely to achieve its stated objectives in the short term. - It would eliminate RNC pension waiting lists and expand coverage to all poor elderly over approximately 10 years but would not extend coverage to people living with disabilities. - Excluding the disabled contradicts basic pension policy objectives like preventing poverty among the elderly and disabled. - Compliance and incentive risks: - A universal basic pension conditioned only on citizenship and residence is very likely to undermine coverage and compliance in contributory schemes, irrespective of benefit levels. - Countries that maintain universal basic pensions alongside broad contributory coverage typically use complex tapering and eligibility rules to limit disincentives; the proposal is silent on how to address disincentives to compliance. - Adequacy concerns: - Proposed benefit level (62 percent of the poverty line) is insufficient as a basic income to prevent poverty. - For workers with short and low contribution histories the PBU benefit may be lower than the top-up to the contributory minimum pension under current rules. - Recommendation implied by assessment: - Key shortcomings (detailed timing, cohort selection, financing gaps, integration with other programs, treatment of disability, incentive effects, and measurement methods for funding targets) should be addressed before the proposal is further processed legislatively. *Source: IMF Technical Assistance Report* ### 66. The high residence criteria – 40 years – is strict and may necessitate other forms of old ### The high residence criteria – 40 years – is strict and may necessitate other forms of old age income support targeting those elderly who fail to meet the residence requirement ### Residence criterion and targeting implications - The 40 years residence requirement for the PBU is strict and may necessitate other forms of old-age income support targeting elderly who fail to meet the residence requirement. - One structural objective of universal benefits is to simplify the social protection system; the stricter the conditions of the PBU, the more likely further targeted social transfers will remain necessary to address old-age poverty. ### Financing design and macro-fiscal implications - Making the PBU fully funded: - Limits the scheme’s capacity to address poverty in the foreseeable future. - Creates fiscal problems by increasing overall financing needs and potentially reported public debt without creating an additional source of financing. - The PBU proposal’s additional financing need is approximately 0.6 percent of GDP (the amount used for accumulating PBU reserves). - This cost is temporarily borne by first-pillar schemes through faster reserve depletion; if first-pillar schemes had no reserves (pay-as-you-go), the proposal would immediately translate into permanent expenditure cuts, tax increases or annual additional debt of 0.6 percent of GDP. - Government plans to transfer 1 percent of GDP annually to the new PBU scheme to build reserves; over the next 30 years these revenues are expected to exceed PBU expenditures, allowing substantial reserves to be built. ### Fiscal impact scenarios and key projections - Two scenarios analyzed: - Gradual “PBU proposal” scenario: - 2024: first beneficiaries are RNC retirees aged 65 and older. - 2025–2054: coverage gradually extended to elderly without contributory or non-contributory pensions (about 30 percent of the elderly). - Thereafter: cohorts aged below 35 in 2024 gradually gain eligibility; PBU becomes fully universal around 2090. - “Immediate PBU” scenario: - PBU becomes universal in 2024 for all elderly except those receiving pensions charged to the national budget. - Main fiscal effects (change relative to baseline, in percent of GDP) — Gradual PBU Reform (table excerpts): - Pension expenditures: 0.0% (2022), 0.0% (2030), 0.2% (2040), 0.4% (2050), 0.6% (2060), 0.6% (2070), 18% (2022-2070). - Of which PBU: 0.0% (2022), 0.4% (2030), 0.6% (2040), 0.8% (2050), 1.3% (2060), 1.6% (2070), 35% (2022-2070). - IVM expenditures: 0.0% (2022), -0.1% (2030), -0.1% (2040), -0.1% (2050), -0.3% (2060), -0.6% (2070), -5% (2022-2070). - RNC expenditures: 0.0% (2022), -0.3% (2030), -0.3% (2040), -0.3% (2050), -0.4% (2060), -0.4% (2070), -11% (2022-2070). - Pension revenues*: 0.0% (2022), 0.2% (2030), 0.1% (2040), 0.1% (2050), 0.1% (2060), 0.1% (2070), 5% (2022-2070). - Government Financing: 0.0% (2022), 0.2% (2030), 0.1% (2040), 0.1% (2050), 0.1% (2060), 0.1% (2070), 5.0% (2022-2070). - Of which PBU transfers: 0.0% (2022), 1.0% (2030), 1.0% (2040), 1.0% (2050), 1.0% (2060), 1.0% (2070), 30% (2022-2070). - State contributions (net effect): 0.0% (2022), -0.5% (2030), -0.5% (2040), -0.6% (2050), -0.6% (2060), -0.6% (2070), -19% (2022-2070). - RNC revenues reduced: 0.0% (2022), -0.3% (2030), -0.3% (2040), -0.3% (2050), -0.3% (2060), -0.3% (2070), -8% (2022-2070). - Memorandum: PBU reserves: 0.0% (2022), 5.0% (2030), 11.3% (2040), 17.1% (2050), 21.2% (2060), 21.1% (2070). IVM reserves depleted: 2030. - Long-term net effect: - Total public pension expenditures rise significantly by +0.6 percent of GDP as PBU coverage increases. - By 2070 PBU expenditures amount to 1.6 percent of GDP; partially offset by lower IVM (-0.6 percent of GDP) and lower RNC (-0.4 percent of GDP). - Net additional long-term pension expenditures to be financed: 0.6 percent of GDP. - Financing gap and reallocation: - Annual PBU financing of 1 percent of GDP can be partially covered by reducing IVM state contributions and RNC revenues, leaving a remaining financing gap of around 0.2 percent of GDP. - From a general government perspective, main financing is via redirecting government transfers from first-pillar schemes (0.5 percent of GDP) and using revenues dedicated to RNC (0.3 percent of GDP); still about 0.2 percent of GDP additional resources needed. - Scheme solvency risks: - PBU prefunding deteriorates fiscal stability of first-pillar schemes by redirecting transfers and accelerating reserve drawdowns. - Under the PBU scenario IVM reserves are projected to be depleted by 2030 (four years earlier than base); without further measures IVM will run significant deficits from 2030 onwards, higher than in the base scenario at least until 2060. - RCC and FPJ schemes similarly affected, with reserves drawn down around 3 years earlier than baseline. ### Immediate PBU introduction scenario specifics - Immediate universal PBU in 2024 would cost around 1.3 percent of GDP in the introduction year and would rise further in the future. - Proposed financing sources under immediate scenario: - Transfers allocated to the RNC: about 0.4 percent of GDP. - Other revenues: 0.2 percent of GDP. - Fiscal gains from reducing state contributions: about 0.4 percent of GDP. - These resources would still be insufficient to fully finance immediate universal PBU benefits. - Prefunding under immediate scenario is unrealistic: - In 2024 expenditures would be significantly higher than the minimum financing obligation of 1 percent of GDP, making reserve accumulation difficult. - Effect on IVM reserves under immediate introduction: - IVM expenditures would drop by more than revenues, resulting in a later depletion of IVM reserves (IVM reserves depleted: 2039 under immediate reform scenario). - Reduction in IVM expenditures driven by partial substitution of IVM pensions with PBU and lower IVM health contribution expenditures. ### Welfare, replacement rates, and poverty impacts - Replacement rates: - The PBU proposal shows only a minor impact on future expected pension replacement rates on average because the combined benefit cannot be lower than current rules (including contributory minimum). - Exception: low wage earners whose PBU benefit is lower than their minimum pension top-up — share of this group among retirees is very small (about 4 percent of minimum pension recipients or 1 percent of overall pensioners who retired in 2021 and 2022; simulated share about 5% for total new retirees). - New reference earnings calculation may decrease replacement rates by about 2 percent for an average wage earner when considering the new reference earnings. - Replacement rate projections (selected rows from Table 8): - Average Wage Earner - Average Career: BASELINE 52% (2022), 46% (2030–2070); Gradual PBU Reform 52% (2022), 45% (2030), 45% (2040), 44% (2050), 44% (2060), 44% (2070). - Low wage earner - Short Career: BASELINE 45% (2022), 44% (2030–2070); Gradual PBU Reform 45% (2022), 44% (2030–2070). - High Wage earner - Long Career: BASELINE 56% (2022), 50% (2030–2070); Gradual PBU Reform 56% (2022), 49% (2030), 49% (2040), 48% (2050), 47% (2060), 47% (2070). - Poverty and redistribution effects: - Government plans to allocate at least one percentage point of GDP annually to finance the PBU. - This allocation is approximately double IMAS 2022 budget allocation (0.55 percent of GDP) and 2.5 times the non-contributory old-age benefits budget allocation (0.4 percent of GDP). - Alternative allocation of 1 percent of GDP to existing anti-poverty programs: - If a transfer equivalent to the urban poverty line is considered and households with older adults prioritized, 1 percent of GDP could eradicate poverty among older adults and reduce overall poverty headcount by 10.6 percentage points, from 25.5 percent to 15 percent. - Cost comparison: - Total PBU budget allocation from 2024 to 2030 equals 7 percent of GDP. - The cost of introducing the Universal Basic Pension is about one-third of the additional spending needed to achieve the SDGs in five sectors by 2030 (education, health, electricity, water and sanitation, roads). - Expected poverty reduction timing and magnitude: - PBU is expected to take around nine years to achieve full coverage among older adults currently living in poverty, with a reduction of at most 6.5 percentage points in the old adult poverty headcount. - Proposed transfer amount: 13 payments of CRC 82,000 each, corresponding to approximately 69.2 percent of the urban poverty line and 89.6 percent of the rural poverty line in 2022. - Given average household composition (2.6 inhabitants where older adults reside, about half aged 65+), the proposed amount falls short of effectively lifting seniors out of poverty immediately. - As the program is gradual, all now-uncovered poor older adults become beneficiaries only by 2032; the maximum poverty reduction effect (6.5 percentage points among older adults) is projected by 2032 and remains constant thereafter. - These impact assessments assume the annual benefit is indexed to inflation; without indexing, poverty impact would be lower. - Redistribution over time: - Redistributive effect of spending aimed at supporting the elderly will fade as PBU reaches elderly in higher quintiles. - Among future PBU beneficiaries currently not covered by a pension, only 30 percent are classified as poor or extremely poor. - Current share of spending going to seniors in the bottom 30 percent of per capita income distribution: 54.1 percent. - By 2032 this percentage is projected to increase to 64.5 percent due to the PBU introduction. ### Policy implications and trade-offs - Trade-offs highlighted: - Tradeoff between reaching higher PBU coverage in the short term and the ability to build up reserves for prefunding future obligations. - Prefunding via transfers from first-pillar schemes improves PBU reserve accumulation but worsens first-pillar solvency and creates contingent fiscal risks likely to be ultimately underwritten by the government. - Financing choices and residual gaps: - Annual 1 percent of GDP transfer to PBU partly covered by redirecting 0.5 percent of GDP from first-pillar state contributions and 0.3 percent of GDP from RNC revenues, leaving about 0.2 percent of GDP to be identified. - Potential need for complementary measures: - Given strict residence criterion and phased rollout, targeted social transfers will likely remain necessary to protect elderly who do not meet residence requirements or who are not immediately covered. - Without benefit indexing to inflation, poverty-reduction impact will be lower. *IMF Technical Assistance Report | 35–41* ### 86. Starting in 2033, when non-poor older adults begin to receive PBU benefits, the additional ### tarea2024043 - 86. Starting in 2033, when non-poor older adults begin to receive PBU benefits, the additional ### Major findings on distributional effects and coverage - As the PBU reaches full coverage and given that older adults are evenly distributed throughout the income distribution, it is expected that only 33.4 percent of the resources allocated to the program will be directed toward poor older adults. - Starting in 2033, when non-poor older adults begin to receive PBU benefits, the additional resources will gradually erode the positive redistributive effects achieved by the program up until that point. - In Costa Rica, older adults are evenly distributed across the income distribution, so a universal PBU leads to spending that is evenly distributed across the income distribution. - The non-contributory regime (RNC) currently directs the majority of its resources to individuals within the poorest 30 percent of the population, but scope exists to further reduce leakage to wealthier households. ### Recommendations — Improving coverage and adequacy - Instead of a universal basic pension, consider measures aiming to expand coverage in IVM and RNC; greater coverage by RNC promises a greater and less costly anti-poverty impact than the proposed PBU given administrative capacity and reliable databases. - Improve information exchange between the tax department and the CCSS; registries should be regularly reconciled and tax and contribution records cross-checked; social security, labor inspectorate and tax audit results need to be shared across institutions. - Consider collecting wage and income tax returns from all employees and self-employed persons, irrespective of income levels, because employees in the zero-rate income tax bracket are not currently reported to the tax department by their employers. - Consider reducing the retroactive payment obligation of self-employed people registering with the CCSS later than with the tax department to one year to encourage compliance and joining IVM. - Make participation in the second pillar mandatory for the self-employed or, at a minimum, consider auto-enrollment (auto-enrolled participants can opt out). - Consider reducing the minimum contribution history (vesting period) in IVM (for instance to 12 instead of 180 months) but keep it as a condition for eligibility for a contributory minimum pension; reduced vesting periods help increase pension coverage but increase future pension expenditures. - Commit to eliminating the RNC waiting list within a clearly defined and published timeframe and amend eligibility rules so that receiving an RNC benefit doesn’t prevent other elderly household members from receiving the same benefit. - If proceeding with PBU, consider options: - Increase the eligibility age relative to the normal retirement age for people without a contributory benefit (for example, by 5 years) to introduce the new scheme faster or at lower cost and apply resulting savings to expand coverage among the elderly. - Operate PBU as a tax-financed scheme without pre-funding; accruing a special PBU reserve invested almost entirely in public debt represents no additional source of financing and may create double-financing problems. - Expand coverage to people with disabilities who meet IVM disability pension eligibility conditions but lack access due to insufficient contribution histories. ### Fiscal and welfare consequences — comparison of alternatives - The same results in poverty reduction expected in 2032 with the gradual PBU can be achieved immediately with two alternatives: - Extend RNC coverage to include all elderly individuals living in poverty who currently do not receive any pension. This would cost 0.1 percentage points of GDP in 2023 — approximately one-third of the additional spending allocated to the gradual PBU scenarios. - Immediately introduce the PBU for all individuals above 65 years of age, which would imply a significant increase in the current budget allocation of the non-contributory regime — the allocation need is as high as four times the current budget allocation. - The average household poverty gap for the poor elderly not covered by RNC is CRC 123,985 monthly; among poor elders receiving a non-contributory pension it is CRC 91,907 monthly. The amount considered in the PBU project will not be enough to reduce poverty among older adults significantly. - If coverage of the non-contributory regime is expanded while the transfer is increased to the urban poverty line (CRC 128,406), poverty among older adults will be reduced by half. Implementing this program would require an increase in public spending of 0.5 percent of GDP, equivalent to the annual additional budget allocation for the PBU. - A coverage extension of RNC beneficiaries to the elderly uncovered poor would increase overall RNC expenditures by about 0.2 percent of GDP over the long-term. The costs of this IMF proposal are about 0.4 percent of GDP lower over the long-term compared to the PBU scenario. - Well-targeted social protection programs reduce poverty at minimum possible cost and have a greater redistributive effect; in Costa Rica, with high administrative targeting capacity, targeted programs are preferable to universal PBU for reaching the most vulnerable at lower cost. ### Quantitative scenario outcomes and key statistics (as presented) - Baseline Scenario: - Poverty headcount: 18% - Poverty gap: 88,787 - p90/p10: 27.0 - Additional cost % of baseline: 0.0% - PBU immediately: - Program coverage among people aged 65+: 94% - Average monthly transfer (in 2022 prices): 88,787 - p90/p10: 20.5 (other table entries include 5.5, 9.2) - Additional cost % of baseline: 330% - PBU gradual (impact in 2024): - Poverty headcount: 19% - Poverty gap: 88,787 - p90/p10: 27.0 - Additional cost % of baseline: 150% - PBU gradual (impact in 2030): - Poverty headcount: 25% - Poverty gap: 88,787 - p90/p10: 22.4 (other entries 5.9, 9.0) - Additional cost % of baseline: 150% - PBU gradual (impact in 2032): - Poverty headcount: 27% - Poverty gap: 88,787 - p90/p10: 20.5 (other entries 5.5, 9.0) - Additional cost % of baseline: 150% - Increase RNC coverage (people 65+ living in poverty and extreme poverty, currently not covered by any other pension scheme): - Poverty headcount: 27% - Average monthly transfer (in 2022 prices): 88,787 - p90/p10: 20.5 (other entries 5.5, 9.0) - Additional cost % of baseline: 47% - Increase RNC coverage and increase in the monthly transfer (monthly urban poverty line): - Poverty headcount: 27% - Average monthly transfer (in 2022 prices): 139,107 - Poverty gap: 11.8 (other entries 3.1, 7.5) - Additional cost % of baseline: 147% - Reported additional expenditure / impacts in illustrative figures: - Additional expenditure (% GDP): 0.6 → Poverty headcount: -6.5 → P90/P10 ratio: -1.7 - Additional expenditure (% GDP): 1.0 → Reduction poverty headcount: -6.5 → Reduction P90/P10 ratio: -1.5 - Additional expenditure (% GDP): 0.1 → Poverty headcount: -6.5 → P90/P10 ratio: -1.7 - Additional expenditure (% GDP): 0.5 → Poverty headcount: -15.2 → P90/P10 ratio: -3.2 - Long-run RNC expenditure trajectory examples (selected table entries): - RNC Expenditures shown as 0.4%, 0.4%, 0.4%, 0.5%, 0.5%, 0.5% across YEAR2022–2070 and a 2022-2070 (NPV) entry of 16%. - Under IMF PROPOSAL: RNC Expenditures shown as 0.4%, 0.5%, 0.6%, 0.6%, 0.7%, 0.7% and 22% (2022-2070 NPV). ### Targeting, data and administration improvements - Transition from a request regime to an automatic allocation regime (prioritizing older adults living in extreme poverty) should be considered because SINIRUBE can identify poor older adults; this would increase the proportion of benefits reaching those most in need. - Improve SINIRUBE accuracy by incorporating additional administrative information, such as self-employed income tax declarations, and expand information exchange agreements with relevant institutions to enhance the matching learning algorithm and reduce inclusion and exclusion errors. ### Further parametric and governance issues - Consider eliminating state contributions and shifting financing burden onto members and employers, replacing the state contribution with a subsidy equal to the actual annual cost of the minimum contributory pension top-up. - Legislate backward-looking, automatic price indexation of pension benefits to maintain benefits’ real value and protect pensioners from discretionary adjustments. - Consider changing the indicator for valorizing elements of the reference wage from prices to wages or revise accrual rates to more transparently achieve desired starting pension levels. - Introduce early retirement penalties that at minimum reflect the combined financial effect of lower lifetime contributions and longer withdrawals; consider increasing marginal replacement rates for years of service beyond the normal retirement age to incentivize delayed retirement. - Clarify division of responsibilities between parliament, government and CCSS; consider re-defining the division of labor across MLSS, SUPEN, and pension schemes, with policymaking and regulations entrusted to a single government entity (preferably MLSS) and CCSS powers limited to interpreting and enforcing laws and regulations. *IMF Technical Assistance Report* ### 107. Revenue administration should undergo a comprehensive review with the objective of ### tarea2024043 - 107. Revenue administration should undergo a comprehensive review with the objective of ### Revenue administration: objectives and problems - Recommendation: Revenue administration should undergo a comprehensive review with the objective of improving monitoring, collection and enforcement of income taxes and social security contributions. - Identified issue: The current system of separately reporting incomes to the tax department and the CCSS encourages underreporting, partial coverage and differentiated registration and income reporting. - Policy implication: Closer collaboration and more comprehensive income reporting (irrespective of whether the income falls within taxable brackets) is crucial to: - Narrow the social security coverage gap. - Reduce the share of workers reporting contribution liable incomes at or close to the minimum permissible level. ### Fiscal and welfare impact analysis for pension-related regulatory changes - Recommendation: To promote fact-based policymaking, transparency and accountability, long-term fiscal and welfare impact analyses should mandatorily accompany regulatory amendments impacting public pension finances. - Current practice: The PBU proposal is not accompanied by any impact assessment; discussion with the authorities, including the CGR, indicates it is uncommon to attach such analyses to draft bills. - Suggested institutional solution: The authorities may consider ensuring, by enacting or strengthening procedural fiscal rules, that no draft legislation with tangible fiscal consequences can be submitted for reading in parliament without standardized impact assessment. ### Mandatory offsetting in the legislative process - Recommendation: Augment the legislative process by requiring mandatory offsetting: proposals that increase government financial obligations or reduce revenues should be accompanied by proposals offsetting the negative impact. - Rationale: Mandatory offsetting can prevent (or limit) increasing unfunded liabilities. - Special importance: Particularly important in pension systems where incremental obligations are spread over a very long horizon and may involve asynchronous revenue and expenditure effects. ### Annex 1 — Modeling methodology: overview - Model type: Dynamic cohort simulation model. - Basis: Age- and gender-specific profiles reflecting current and future benefit and contribution levels, scheme participation rates, contribution densities, and retirement behavior. - Data sources: - Administrative data provided by the authorities. - Micro data covering pension levels and historic contribution variables of 20,000 retirees. - Micro simulation based on contribution careers of 20,000 non-retired IVM scheme members for contribution career trends. - Demographic assumptions based solely on UN World Population Prospects 2022 (Medium Variant) due to lack of up-to-date INEC projections and unavailable mortality information of IVM scheme members. - Noted data limitation: The last publicly available population projection from INEC is from 2018. ### Main assumptions of the baseline projections (as presented) - Demographic: UN World Population Prospects 2022 (Medium Variant) - Inflation: 3 % in the long-term - Wage Growth, in real terms: 2 % in the long-term - GDP Growth: IMF estimates until 2028, wage + employment growth thereafter - Generally Price Indexation: Only minimum pensions as well as pensions charged to the state budget are indexed with wages - Minimum Wage: Growing with wage growth in line with its real increases in the past decade - Discount Rate, in real terms: 3.50% - Rates of Return of Reserve Funds, in real term: 3.50% - Employment and Participation Rates: 2022 Rates - Pension Indexation: (see “Generally Price Indexation” above) ### Key methodological steps and formulas (high-level) - Estimation of existing retirees’ per-capita pension profiles: - p_{b,k} = B_{b,k} * M_{b,k} / C_{b,k} (Eq.1) - Identity: P_b = Σ_{k=b-D}^{b} p_{b,k} C_{b,k} (Eq.2) - Re-scaling via benchmarking factor φ to reconcile micro profiles with aggregate pension expenditures: - p_{b,k} = φ τ_{b,k} (Eq.3) - φ = P_b / Σ_{k=b-D}^{b} τ_{b,k} C_{b,k} (Eq.4) - Indexation of existing retirees’ benefits: p_{t,k}^{exis} = p_{b,k}^{exis} (1+g)^{t−b} (Eq.5) - Estimation of benefits for future new retirees: - For old age pensions: - p_{t,k}^{new} = l_{b,k} * (1+v)^{t−b} * z_{t,k} * θ_{t,k} (Eq.6) - l_{b,k}: average benefits of current new retirees in 2022 - z_{t,k}: retirement probability per capita - θ_{t,k}: relative change due to legal changes or contribution history trends - For disability and survivors pensions: - p_{b,k}^{new} = p_{b,k}^{exist} − p_{b,k+1}^{exist} (Eq.7) - p_{t,k}^{new} = [p_{b,b−(t−k)}^{exist} − p_{b,b−(t−k−1)}^{exist}] * (1+v)^{t−b} * θ_{t,k} (Eq.8) - Accumulation of future benefits: - p_{t,k}^{fut} = p_{t−1,k}^{fut} (1+g) + p_{t,k}^{new} (Eq.9) - Total pension expenditures in year t: - TE_t = Σ_{c=t}^{b−D} (p_{t,k}^{exist} + p_{t,k}^{fut}) * C_{t,k} (Eq.10) - Revenue projection approach: - Derive age- and gender-specific average contributions per capita, rescale to match aggregate revenue statistics, index with general wage growth, assume base-year labour market participation rates remain constant (except in retirement age reform cases), then multiply by future cohort sizes. ### Annex 2 — Public schemes: selected regulatory features (selected snapshots) - Scheme names: IVM (Invalidez, Vejez y Muerte); RCC (Régimen de Capitalización Colectiva); FPJ (Fondo del Poder Judicial) - Coverage: Salaried workers and self-employed, voluntary for all other citizens; Teachers and professors who started working after July 1992; Workers of the Judicial Power - Eligibility for old age retirement: Normal Retirement 65 years (IVM, RCC, FPJ all listed as 65 years) - Earliest permissible retirement: - IVM: Males: 61 years + 11 months (after 2023 not possible); Females: 59 years + 11 months (after 2023: 63 years) - RCC: 55 years old - FPJ: Males: 62 years old; Females: 60 years old - Minimum service history (Normal Retirement): - IVM: 300 contribution months - RCC: 180 contribution months - FPJ: 35 years - Accrual Rates / Benefit calculation highlights: - IVM: 43percent to 52,5percent (basic amount) for the first 240 (300 after 2023) contribution months, depending on earnings, 0.0833 percent for each additional contribution month - RCC: 60percent (basic amount) for the first 240 contribution months, 0.1 percent for each additional contribution month - FPJ: 82percent of the average of the last 240 updated salaries (or a proportion) - Minimum pension: 142,517 CRC monthly in 2022 - not less than one third of the base salary of the lowest paid in the judiciary - Maximum pension: 1,666,062 CRC monthly in 2022 - Reference earnings: - IVM: last 240 wages indexed with prices - RCC: best 32 salaries earned indexed with prices - FPJ: last 240 salaries indexed with prices - Pension Indexation: Discretionary (all three funds) - Contribution Basis: - Minimum contribution base: 306,383 CRC monthly in 2023 = proportion of minimum wage for unskilled workers (all three funds) - Contribution ceiling: - (no ceiling specified) - Contribution Rates: - IVM: Employer 5.42percent (after 2028: 5.75percent); State 1.58percent (after 2028: 1.91percent); Employee 4.17percent (after 2028: 5.75percent) - RCC: Employer 6.75percent; State 1.41percent; Employee 8.00percent - FPJ: Employer 14.36percent; State 1.41percent; Employee 13.00percent *IMF Technical Assistance Report | Excerpts from the specified content unit* --- _Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024043.pdf_