Retirement Conditions and legal age

In Guatemala, retirement is treated differently for public and private employees. For public employees, the following regulations apply for each retirement plan:

a. Voluntary (1): when an employee has 20 years of service regardless of his or her age .

b. Voluntary (2): when an employee reaches age 50 and proves a minimum of 10 years of service.

c. Mandatory: when an employee has reached 65 and proves a minimum of 10 years of service.

For private employers, there is not an obligation to provide employees with a private fund for retirement.

Notwithstanding the above, the Guatemalan Social Security System (which is mandatory) provides a very basic retirement plan, health assistance, motherhood care and assistance in occupational accidents. To access these programs, the employee and the employer must pay an amount that is withheld and paid on a monthly basis; 4.83% of the total salary is paid by the employee and 12.67% is the mandatory amount paid by the employer.

To access the private retirement regime, an employee needs to reach age 60 and have made 240 months of contributions.

As a balance between both retirement regimes, in 2007 Guatemala approved the Economic Fund for Old Age Act, a fund that provides assistance to persons older than 65 who have never accessed the national social security retirement plan.

The May 2018 report of the Economic Commission for Latin America and the Caribbean (ECLAC) underscored the need to revisit retirement pension plans, citing the tendency of employees to continue working after reaching the legal age for retirement.

The main reasons indicated are:

a. Weak pension systems that do not provide a sufficient pension to cover all their needs after retiring.

b. Private medical insurance provided by private corporations that offer jobs after retirement.

c. Lack of sufficient pensions to support economic obligations for dependents (such as minors or disabled family members)

The Guatemalan reality is that there is a legal regime for workforce retirement, but it is not effective since employees have the need to continue working. They are not fully satisfied with the retirement pension provided by their plans. Based in our analysis and in compliance with the Social Security administrative procedure, we consider as companies best practices the following:

a. The companies as employers have the compliance obligations in social security contributions. The employer is the responsible to correctly withhold and pay such contributions, so it is necessary to have a full record of these obligations compliance. Such records will be helpful in case of any claim by the employees or the Social Security authorities.

b. Action: Other best practice not regulated in law or administrative regulations is to grant a proof (letter) with description of all the contributions paid to the social security during the labor relationship. Some companies provide this proof at the end of the labor relationship.

c. Plan: To schedule trainings to all the employees near to the retirement age, in order to provide them information about the process and documents required by the social security authorities. Additionally, to perform internal politics in which include the procedure to promote retirement among employees in legal age and the procedure through Directors and Human Resources will provide a corporate structure for a healthy transition, including recruitments on time to cover vacancies.

By:
Ruby Asturias Castillo | Partner EY Law Guatemala

Mirla Tubac | Manager EY Law Guatemala