Low contribution thresholds, an outdated formula, and rising state support are fueling concern over long-term sustainability.

Ecuador’s pension system is once again under scrutiny as economists, policy experts, and public officials wrestle with a question that has become harder to avoid: how long can the retirement fund keep paying benefits under its current rules without deeper changes.

At the center of the debate is the pension branch of the Ecuadorian Social Security Institute, better known as IESS, one of the country’s most important public funds because it finances monthly retirement payments and other benefits tied to old age, including funeral assistance. For millions of workers, it represents the promise that decades of contributions will eventually translate into some form of financial stability in retirement.

But that promise has been under increasing strain for more than a decade. Since 2014, the system’s income from worker contributions has not been enough to cover the cost of pensions and related obligations. The gap has forced the fund to rely more heavily on state transfers and to draw from its own reserves to keep up with monthly payments, raising concerns that the model is becoming harder to sustain with each passing year.

That has transformed what was once treated as a technical issue into a political and social dilemma. Any reform serious enough to improve the fund’s long-term survival would likely require sacrifices, either by making retirement harder to reach, lowering the amount paid out, or increasing the burden on workers, employers, or the government. Those are unpopular choices, which helps explain why the issue has lingered without a lasting fix.

A system under pressure

The pension fund’s problem is not that it suddenly stopped working. It is that the balance between what comes in and what goes out has been deteriorating for years. Contributions from active members once covered the benefits being paid, but that has no longer been the case since 2014. The result is a structural deficit, not a one-time shortfall.

To fill that gap, the State has had to contribute more resources, creating an additional fiscal burden at a time when public finances are already tight. Even that has not been enough on its own, which means the fund has also been spending savings that were meant to provide stability. In practical terms, the system is not living only on current income. It is also consuming the cushion that was supposed to protect it.

That dynamic has sharpened the urgency of a conversation that successive governments and policymakers have struggled to carry forward. The longer the current rules remain untouched, the more expensive and politically difficult any eventual correction could become.

How retirement works now

For most workers, retirement through IESS depends on a combination of age and years of contribution. The ordinary route is the best known: a person becomes eligible at age 60 with at least 30 years of contributions. But the system also includes several other thresholds, including a pathway that allows retirement at age 70 with only 10 years of contributions.

Below are the current requirements:

Requirements for Retirement Pension

Age	Payments into System	Years of Contribution
No age limit	480 or more	40 or more
60 years or more	360 or more	30 or more
65 years or more	180 or more	15 or more
70 years or more	120 or more	10 or more

Those rules are at the heart of the current criticism. While many retirees spend decades paying into the system, the existence of a retirement option with only 10 years of contributions has become increasingly controversial. Critics argue that it allows some people to receive benefits disproportionate to what they paid in, especially if they contributed during years in which their reported salaries were relatively high.

That criticism has grown more pointed as the pension fund’s financial problems have worsened. What may once have been tolerated as a generous feature of the system is now being viewed by some analysts as one of several distortions that make the fund more fragile.

Why the formula matters so much

The controversy does not stop with the retirement age or the number of contribution years. It also reaches the formula used to calculate how much a retiree receives each month.

Under the current scheme, the first step is to determine the affiliate’s average monthly salary from the five best years of contributions. That figure then becomes the base used to calculate the pension. The second step is to apply a coefficient tied to the total number of years contributed.

This is where many specialists say the system has failed to evolve. The Social Security Law approved in 2001 established that the pension calculation would begin with the five best years of service, but it also provided that the IESS Board should review the formula each year and gradually increase the benchmark until it reached the 20 best years. That change never happened.

As a result, more than two decades later, pensions are still being calculated using only the five best earning years, a method that can produce higher monthly benefits than a broader average would. In a system already facing chronic deficits, that has become one of the central points in the reform debate.

The coefficients currently used are as follows:

Coefficient for Calculating Pension

Years of Contribution	Coefficient	Years of Contribution	Coefficient
5	0.438	23	0.663
6	0.450	24	0.675
7	0.463	25	0.688
8	0.475	26	0.700
9	0.488	27	0.713
10	0.500	28	0.725
11	0.513	29	0.738
12	0.525	30	0.750
13	0.538	31	0.763
14	0.550	32	0.775
15	0.563	33	0.788
16	0.575	34	0.800
17	0.588	35	0.813
18	0.600	36	0.833
19	0.613	37	0.861
20	0.625	38	0.897
21	0.638	39	0.943
22	0.650	40	1.000

In the example commonly used to explain the formula, a worker with an average monthly salary of $413.8 over the five best years and 30 years of contributions would have that salary multiplied by the 0.750 coefficient. The result is a monthly pension of $310.35.

That example helps explain why proposed changes stir so much resistance. If the base salary were calculated over a longer period, such as 10, 15, or 20 years instead of just five, the monthly pension for many future retirees would almost certainly fall. For workers nearing retirement, that is not an abstract concern. It is a direct threat to expected income after leaving the labor market.

A difficult political choice

That tension is why reform remains so elusive. On paper, the options are well known. Ecuador could raise the retirement age, require more years of contribution, adjust the pension formula, increase contribution rates, or combine several of those measures. Each of those moves would improve sustainability to some degree. Each would also create winners and losers.

Raising the retirement age would keep people contributing longer and delay benefit payments, but it would be unpopular in a country where many workers already face unstable employment and limited job security later in life. Increasing the number of years used to calculate pensions would likely reduce monthly payments, which would help the fund but anger workers who planned their futures under the current rules. Raising contribution rates would bring in more money, but at the cost of higher pressure on wages and payrolls.

That helps explain why repeated discussions about pension reform have struggled to gain traction in the public arena. The fiscal logic behind change may be increasingly clear, but the political logic remains brutal. Few leaders want to champion reforms that can be portrayed as cutting pensions, forcing older people to work longer, or asking workers to pay more into a system many already distrust.

Yet the arithmetic does not disappear because the politics are difficult. The longer the system runs deficits, the more it depends on support from the State and on the gradual depletion of its own reserves. That may keep the system functioning for now, but it does not resolve the underlying mismatch between promises made and resources available.

The fairness question

Beyond the numbers, the pension debate is also turning into an argument over equity. Should someone who contributed for 30 or 40 years receive benefits calculated under rules that can also favor someone who paid in for a much shorter period? Should a system under financial stress continue rewarding the best five years so heavily when that formula was supposed to be widened long ago?

Those questions go to the heart of public confidence in social security. A pension system depends not only on funding, but on legitimacy. Workers need to believe that the rules are fair, predictable, and sustainable. If they begin to see the system as distorted or financially unstable, trust erodes, and once trust starts to disappear, reform becomes even harder.

For Ecuador, that may be the real significance of the current debate. The issue is no longer only how to keep paying today’s retirees. It is whether the country is willing to confront the cost of preserving a system whose rules were designed for a different time and whose weaknesses are now becoming impossible to ignore.