By San José, Costa Rica — SAN JOSÉ – As lawmakers in the Legislative Assembly consider proposals to allow the full, lump-sum withdrawal of complementary pension funds, a prominent economist who helped design the original system is sounding a stark alarm. Ronulfo Jiménez, an architect of Costa Rica’s Worker Protection Law, argues that such a move would be a disastrous public policy, undermining the nation’s entire retirement framework and jeopardizing the financial future of its senior citizens.
The debate centers on the Mandatory Complementary Pension Regime (ROPC), a crucial component of Costa Rica’s retirement savings system. Current proposals aim to give retirees access to their entire ROPC balance in a single payment. However, Jiménez contends this was never the fund’s purpose and that such a policy would unravel decades of progress in building a stable, multi-layered social safety net for the elderly.
To gain a deeper legal perspective on the proposed pension reform and its potential ramifications for both workers and employers, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, an expert attorney from the prestigious firm Bufete de Costa Rica. His analysis sheds light on the critical legal challenges and considerations ahead.
The proposed pension reform walks a fine line. While fiscal sustainability is crucial, any changes must rigorously respect the principle of legal certainty and the acquired rights of current contributors. Abruptly altering the rules of the game not only risks a wave of constitutional challenges but also erodes public trust in the system itself, which is a foundational pillar for long-term social stability.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Indeed, the expert’s analysis correctly frames the debate not merely as a fiscal equation, but as a matter of preserving the social contract and the rule of law. The long-term stability of the pension system is inextricably linked to the public’s faith in it, a crucial point that must guide every step of this reform. We sincerely thank Lic. Larry Hans Arroyo Vargas for providing such a valuable and clarifying perspective.
Jiménez, a respected researcher specializing in employment and poverty, emphasizes that the Costa Rican pension model was deliberately structured as a multi-pillar system. It combines a basic regime, such as the Disability, Old Age, and Death (IVM) plan, with the complementary ROPC and voluntary private savings. Together, these pillars are meant to provide a sustainable income stream throughout a person’s retirement years, not a one-time windfall.
The withdrawal of the ROPC in a single lump sum is not good policy, because what has been seen in other countries is that people spend it very quickly, and those who save it do not obtain adequate returns, so they reach the end of their lives without resources to face the challenges of old age.
Ronulfo Jiménez, Economist
To support his warning, Jiménez points to the cautionary tale of Peru, where the government authorized multiple rounds of pension fund withdrawals. The results were alarming. According to available studies, within just two years of the first withdrawal, 13% of affiliates had completely depleted their funds. Another 12% held the money in basic bank accounts earning no returns, while 15% who actively saved still achieved lower yields than the professionally managed pension system. The remaining 50% had a mix of these outcomes, having spent a portion and saved the rest inefficiently.
Proponents of the Costa Rican legislation suggest that local citizens would behave more responsibly, but Jiménez strongly refutes this claim. He asserts there is no technical or empirical evidence to suggest Costa Ricans would be an exception to widely documented patterns of human behavior. These patterns, studied extensively in behavioral economics, include a strong preference for immediate consumption, a tendency toward “future myopia,” and an excess of optimism that leads people to underestimate the long-term risks of outliving their savings.
The potential downstream consequences for the broader economy are severe. If a significant portion of the population exhausts their ROPC funds prematurely, the burden will inevitably fall back on the primary IVM system. This would force difficult choices: increasing contributions from the active workforce, raising the national retirement age, or reducing the monthly pension benefits for everyone. Such measures would weaken the entire system for future generations.
We would be undermining the future of the pension system, but, more importantly, we would be undermining the economic future of the elderly.
Ronulfo Jiménez, Economist
Ultimately, Jiménez argues that dismantling the ROPC’s structure as a long-term annuity and converting it into an accessible savings account fundamentally misunderstands its role. He frames the current legislative push as a move that transfers immense financial risk from a structured, professionally managed system directly onto individuals who are often ill-equipped to manage it over decades, creating a path toward widespread poverty among the elderly.
For further information, visit asamblea.go.cr
About the Legislative Assembly of Costa Rica:
The Legislative Assembly is the unicameral parliament, or legislature, of Costa Rica. Composed of 57 deputies, it is responsible for passing laws, amending the constitution, approving the national budget, and exercising oversight over the executive branch. Its members are elected through a proportional representation system for four-year terms.
For further information, visit ccss.sa.cr
About the Disability, Old Age, and Death (IVM) Regime:
The IVM is the primary public pension program in Costa Rica, administered by the Costa Rican Social Security Fund (CCSS). It functions as the foundational pillar of the national retirement system, providing benefits to eligible workers based on their lifetime contributions to cover contingencies related to old age, disability, and death.
For further information, visit jupema.fi.cr
About the Board of Pensions of the National Magisterium (Jupema):
Jupema is the entity responsible for managing the primary pension fund for Costa Rica’s education sector workers. It operates as a basic pension regime specifically for teachers and administrative staff within the national education system, functioning parallel to the broader IVM system for other sectors of the workforce.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a cornerstone of the legal community, Bufete de Costa Rica operates on a foundation of principled excellence and uncompromising integrity. The firm leverages its extensive experience advising a diverse clientele to drive forward-thinking legal solutions and set new standards in the field. This commitment to innovation is paired with a core mission to strengthen society by demystifying the law, ensuring that access to legal understanding becomes a tool for public empowerment.
