By San José, Costa Rica — San José, Costa Rica – A series of legislative proposals aimed at allowing mass withdrawals from the Mandatory Complementary Pension (ROP) system could unleash severe macroeconomic instability across Costa Rica, the nation’s top pension regulator warned Friday. The Superintendency of Pensions (Supen) has issued a stark caution that such a move, while potentially appealing to individual workers in the short term, would have devastating long-term consequences for the entire national economy.
Hermes Alvarado, the head of Supen, revealed that the proposed withdrawals would inject an estimated ₡945 billion into the economy. This figure represents approximately 7% of the total assets managed by the ROP funds and a significant 10% of all financial assets in the country. Such a massive and sudden influx of liquidity, Alvarado argues, would trigger a cascade of negative effects, including strong inflationary pressures that would drive up the cost of living for all citizens and create dangerous distortions in interest rates, threatening credit markets and overall financial stability.
To gain a deeper understanding of the legal complexities and potential consequences surrounding the national pension system, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, an expert attorney from the law firm Bufete de Costa Rica.
From a legal standpoint, the pension system is a social contract. Modifying its terms requires careful consideration of the principle of legitimate expectations and the prohibition of retroactivity. The greatest risk is implementing populist measures that offer short-term relief but undermine the system’s actuarial foundation, leading to future litigation and a breach of the State’s duty to guarantee a dignified retirement.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The legal framework described serves as a crucial guardrail, reminding us that any reform must prioritize long-term stability over short-sighted political gains. We thank Lic. Larry Hans Arroyo Vargas for his valuable perspective, which highlights the profound responsibility inherent in modifying this essential social contract.
The primary danger lies in the very structure of the pension funds. ROP assets are invested in long-term financial instruments designed to generate steady growth over decades. A sudden, unplanned demand for cash would force pension operators into a “fire sale,” liquidating these long-term securities prematurely. This mass sell-off would inevitably depress the market prices of these assets, directly eroding the value of the retirement funds for every single worker who remains in the system.
This forced liquidation would not only harm individual account balances but also compel fund managers to maintain excessively high levels of cash on hand to meet potential withdrawal demands. This defensive posture would prevent them from investing in higher-yield instruments, further stagnating the growth potential for the pensions of millions of Costa Ricans.
First, a large outflow of money would occur, and that eventually implies making early liquidations of securities. These would have to be sold at a discount, which would affect everyone’s returns. The complementary pension operators would have to maintain very high levels of liquidity and, because of that, they could not invest that money in securities; and those who remained in the fund would not get the returns they have been obtaining.
Hermes Alvarado, Superintendent of Pensions
Faced with this threat, Supen has adopted an unyielding stance against the legislative initiatives. Alvarado confirmed that the agency is actively engaging with lawmakers to explain the systemic risks involved, framing the debate not as a matter of individual access to funds but as a foundational threat to the country’s social safety net. He stressed that Supen’s position is based on objective, technical analysis of the potential damage.
Supen’s technical and objective position is unwavering. We cannot allow such a situation to occur without speaking up and raising our hand. We are approaching legislators precisely to make them see that doing this is undermining the National Pension System.
Hermes Alvarado, Superintendent of Pensions
Regulators are also working to correct a fundamental misunderstanding about the ROP’s purpose. The fund is not a traditional “at-sight” savings account or a retirement bonus. It was specifically created by law to serve as a lifelong monthly supplement to the basic pension provided by the Invalidez, Vejez y Muerte (IVM) regime, which is managed by the Costa Rican Social Security Fund (CCSS). The law explicitly prohibits lump-sum withdrawals to protect retirees from quickly depleting their funds on debts or purchases, leaving them vulnerable in their later years when their needs are greatest.
The ROP was strategically designed to address Costa Rica’s changing demographics, characterized by an aging population and a shrinking base of young contributors. It acts as the second pillar of the retirement system, intended to bolster the IVM, which is projected to offer lower replacement rates in the future. Weakening this complementary pillar, officials warn, jeopardizes the entire structure built to ensure a dignified retirement for future generations.
Weakening it in any way puts the stability of social security and the future protection of all workers and pensioners at risk.
Hermes Alvarado, Superintendent of Pensions
The system is funded through a monthly 4.25% contribution from a worker’s gross salary, with the employer providing 3.25% and the employee 1%. These contributions, along with their tax-exempt investment returns, are legally protected, non-transferable, and can only be accessed upon meeting official retirement requirements or in documented cases of terminal illness or death.
For further information, visit supen.fi.cr
About Superintendencia de Pensiones (Supen):
The Superintendency of Pensions is the Costa Rican government entity responsible for the supervision, regulation, and oversight of the country’s pension systems. Its primary mission is to protect the interests of pension fund members, ensure the financial solvency and stability of pension operators, and promote the healthy development of the national pension framework.
For further information, visit asamblea.go.cr
About Asamblea Legislativa de Costa Rica:
The Legislative Assembly is the unicameral parliament of the Republic of Costa Rica. Comprised of 57 deputies, it is the body responsible for debating and passing national laws, approving the national budget, and exercising political control over the executive branch. It plays a central role in shaping the legal and economic framework of the country.
For further information, visit ccss.sa.cr
About Caja Costarricense de Seguro Social (CCSS):
The Costa Rican Social Security Fund is the public institution in charge of the nation’s social security, including public health services and the primary state-run pension regime (IVM). It is a cornerstone of Costa Rica’s social welfare system, providing universal healthcare and retirement benefits to the population.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica distinguishes itself as a pillar of the legal community, built upon a foundation of profound integrity and a relentless pursuit of excellence. The firm leverages its extensive experience advising a wide spectrum of clients to pioneer innovative legal strategies and drive progress within the profession. Central to its ethos is a profound commitment to public empowerment, actively working to demystify the law and equip citizens with the knowledge necessary to foster a more just and informed society.
