Business News | March 2009
|Cuba Boosts Retirement Age as Population Goes Gray|
Will Weissert - Associated Press
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Havana — Like much of Cuba's work force, Alfredo Congas is going gray.
|Josefina Petrona, 87, a member of a circle of elderly adults, exercises in Old Havana, Monday, March 23, 2009. Cuba's government raised the retirement age by five years, to 60 for women and 65 for men. Sweeping poverty forces most of Cuba's 2.2 million retirees to do the same: Retire, collect a small pension, then get a new job that allows them to keep a steady income in old age. (AP/Javier Galeano)|
The chain-smoking 61-year-old retired last March after 42 years as a hotel doorman and rum-company driver. Now he's back working 12-hour shifts as a security guard to supplement his minuscule pension.
"I'm here without a cent in my pocket," said Congas, whose new job brings his total income – pension plus paycheck – to the equivalent of $23.45 a month, about $4 more than the average state wage.
Sweeping poverty forces most of Cuba's 2.2 million retirees to get new jobs that enable them to keep a steady income and supplement their pensions. Many barely scrape by, wandering the streets selling peanuts and newspapers or guarding parked cars at hotels for tourists' change.
Now even that is harder to do. Faced with an aging population and a life expectancy of 77.3 years, nearly the same as the U.S., Cuba's government has raised the retirement threshold by five years, to 60 for women and 65 for men, delaying the second jobs many have counted on to make ends meet in their old age.
About 90 percent of Cubans have government jobs, and now both sexes must work at least 30 years, not 25, to get a full pension.
"Retirement in Cuba was already no picnic. Now it's more complicated," said Oscar Espinosa Chepe, a state-trained economist turned political dissident.
The overhaul, to be fully phased in by 2015, means Cuba's retirement age will exceed Latin America's average of 59 for women and 62 for men, according to Carmelo Mesa-Lago, an expert on the Cuban economy at the University of Pittsburgh.
The island's population is aging faster than the rest of the region – some 17 percent will be 60 or older by 2010, compared with 9 percent across Latin America today, according to U.N. data. A quarter of Cubans will top 60 by 2025, a point the rest of the region won't reach until 2050.
As Cuba's work force shrinks, the ratio of workers to retirees has narrowed from seven-to-one in 1970 to three-to-one today. Had the country not raised its retirement age, the ratio would have been two-to-one by 2025, the government said.
"More needs to be done, but what else can you do? You can't turn the screw even more," Mesa-Lago said.
State pensions, though small, were once enough to live on in this communist country, where housing and health care are free and the government subsidizes food, utilities and transportation.
But the Soviet Union's collapse cost Cuba huge amounts of income in subsidies and trade, crippling the economy and sparking widespread shortages that still persist. A U.S.-dollar-fueled black market mushroomed; prices soared and Cuba's peso plunged from 1 to the dollar to 22 to the dollar today.
The minimum monthly pension was worth about $92 in 1989. Adjusted for inflation, it is now the equivalent of $9.50.
"I'm going to keep working, keep fighting," said Antonio Valdes, a 63-year-old graphic designer who earns $19.30 a month. "The elderly who don't know how to do that are screwed."
Many countries are making tough decisions to keep funding social security programs as populations skew older. The U.S. retirement age is slated to increase to 67 by 2027.
A handful of former Iron Curtain countries have privatized their once-troubled pension systems, as well as raising retirement ages and slashing benefits to stretch resources. Several Latin American nations have followed a private-account model pioneered by Chile in 1981.
But privatization isn't an option in Cuba's command economy, where there are no 401Ks or pooled pension funds invested to draw earnings, and most forms of free-market enterprise are illegal.
Instead, a 1994 tax law requires Cuban state firms to contribute 14 percent of each worker's salary to a national social security pot. It also obligates employees in profitable sectors such as tourism to contribute an additional 5 percent.
Still, contributions cover less than 60 percent of current pension costs, with the rest financed by unspecified areas of the federal budget, Mesa-Lago said. While the government doesn't say how much it spends, in 2006 he estimated the sum approached 6.3 percent of gross domestic product.
The funding crunch has grown more urgent since last year's hurricanes caused more than $10 billion in damage, leaving nearly 1 million homeless, crippling farming and forcing costly food imports. Cuba's budget deficit ballooned to $4.2 billion.
The government says 3 million people attended town-hall meetings to discuss the potential retirement age increase last year, with 99.1 percent supporting it. Workers who attended say many complained, but didn't dare oppose the measure in a public show of hands.
"I'm not prepared for this," said Grace, 52, a high school chemistry teacher who supports her 23-year-old son and 86-year-old mother on a monthly wage worth about $25. She asked to be identified by her middle name only, to avoid problems at work.
Now, she'll have to defer retirement and plans to tutor for extra income for two more years.
Much of what the government saves by delaying retirement, it will dole out in bigger pensions. Payments are rising to 60 percent of an employee's peak five years of earnings, from 50 percent. Workers also earn an additional 2 percent for each year on the job after 25 years.
But for some Cubans, the decision to keep older citizens working rather than cracking down on younger, job-ditching countrymen is shaking their faith in the communist revolution.
While Cuba guarantees "full employment" and reports an official jobless rate of 1.6 percent, low salaries mean that many young people no longer seek formal jobs, even though neighborhood-watch committees are supposed to discourage unemployment. Instead, they live with their parents and work on the black market, failing to pay into the pension system at all.
A 34-year-old nurse, who declined to be named for fear her comments would hurt her husband's army career, said the retirement reform leaves her even "more disillusioned."
"I'm young," she said, her eyes welling with tears. "But I'm less optimistic than before."