Country Listing

Uruguay Table of Contents


Social Security Pensions

Uruguay pioneered social security pension programs, starting as early as 1896 with a fund for teachers. The plans were subsequently extended piecemeal to different sectors of the labor force and soon grew extremely complex and bureaucratic. A system of family allowances (based on the number of dependent children) was introduced in 1943 and consolidated in 1950. Unfortunately, the provision of welfare benefits became politicized as politicians from rival parties would intercede on behalf of voters to speed up the endless delays.

Ultimately, the system of benefits began to be abused by politicians in order to "buy" votes. The most notorious example was the case of the seamstresses: far more pensions were handed out to alleged garment workers than there were garment workers. Criticism of the various programs became vociferous by the 1960s, and the programs were reorganized in the single Social Welfare Bank under the 1967 constitution. During the military regime of 1973-85, further efforts at rationalization were undertaken, including the consolidation of most funds under the General Directorate of Social Security (Dirección General de Seguridad Social--DGSS). The number of claimants continued to rise rapidly, however, reaching 629,077 in July 1984.

Social security transfers were not all paid out in the form of pensions, although in 1983 these accounted for 78.3 percent of total outlays. Other categories included family allowances for households with young children (6.4 percent in 1983) and benefits for sickness (4.8 percent) and for unemployment (3.0 percent). However, these had suffered similar declines. In 1983 the total outlays of the DGSS were financed as follows: employers' contributions, 28.1 percent; workers' contributions, 28.1 percent; and state contributions, 43.8 percent.

Uruguay's population has continued to age since 1963, as the censuses of 1963, 1975, and 1985 show. In 1985 the average age of the population was 30.3 years. The percentage of the population over age sixty rose from 11.6 in 1963, to 14.3 in 1975, and to 15.7 in 1985. Those over age sixty-five accounted for 7.6 percent, 9.8 percent, and 11.1 percent, respectively, in the same years. This long-term aging trend, similar to that of developed countries, worried social planners because of the projected strain on social security programs. It was compounded by the high life expectancy of Uruguayans after retirement: sixteen years for men and twenty years for women.

The population's aging trend also made the impact of the decline in the real value of pensions even more serious because it affected an increasingly large share of the population. However, with the return to democracy in 1985, efforts were made by the Colorado administration of Julio María Sanguinetti Cairolo (1985-90) to restore some of their real value. Although the opposition parties severely criticized the Colorados for not increasing social security payments faster, these at least grew 20 percent from 1984 to 1987 in real terms. The greatest increases were awarded to those receiving the smallest pensions.

Data as of December 1990