Frequently Asked Questions: Social Security Fund Law

Law N°. 462 of March 18, 2025

By: Estefanía Guardia

Below, we answer the most common questions regarding the changes introduced by Law No. 462 to the Social Security Fund (CSS) system.

About the New System

1. What is the Unified Capitalization System with Solidarity Guarantee?

It is the new pension system created by Law 462. It is financed through a Unified Solidarity Fund and structured into two components:

• Non-contributory solidarity component: grants a universal minimum pension of B/.144.00 to those who have not been able to make sufficient contributions, and a guaranteed solidarity minimum pension of B/.265.00 for those who meet retirement requirements (minimum age + contributions).
• Contributory solidarity capitalization component: provides a guaranteed pension based on the contributions accumulated in the member’s individual account.

2. To whom does the new system apply automatically?

It applies automatically to:

• New members entering the system as of March 18, 2025.
• Mixed Subsystem contributors who, when the law was enacted, were more than 7 years away from retirement age.
• Contributors affiliated with previous systems may voluntarily migrate until August 18, 2026. Otherwise, they remain under their current system.
• As of March 1, 2032, all Mixed Subsystem members who have not migrated will be transferred to the new system.

3. Does Law 462 privatize CSS funds?

No. The system remains public and administered by the CSS. The law only allows up to 10% of CSS reserve funds to be invested through private Investment Managers in order to generate higher returns.

4. How do I know whether I am in the old system or the new one?

It depends on the year in which you joined the CSS system:

• Defined Benefit Subsystem (DBS): Members who were over 35 years of age as of January 1, 2006, or who, as of December 31, 2007, did not elect to join the Mixed Subsystem.
• Mixed Subsystem: Members who expressly elected to join it by December 31, 2007, or employees who entered the workforce and joined the CSS for the first time on or after January 1, 2008.
• Unified Capitalization System (new): Employees who become affiliated with the CSS for the first time on or after March 18, 2025, or those who voluntarily migrate to the new system before August 18, 2026. It also applies to insured employees who, as of March 1, 2032, remain enrolled in the Mixed Pension Subsystem.

Retirement Age and Pension Calculation

5. Will the retirement age change?

No, not for now. The legal retirement age remains 57 for women and 62 for men. The law does not establish a gradual increase, although actuarial evaluations will be conducted over the next six years.

6. Will there be a future review of the retirement age?

Possibly, but nothing has been decided. The CSS will hire three entities to conduct an actuarial analysis, and the National Assembly will have six years to evaluate the results.

7. What happens if I did not complete the minimum 240 contributions?

There are several options available, depending on the subsystem to which the employee belongs to:

Under the Defined Benefit Subsystem and the Defined Benefit Component of the Mixed Subsystem:

• Proportional Retirement Pension: Available to employees who have accumulated at least 180 contributions, provided they meet the applicable retirement age requirements.
• Early Proportional Retirement Pension: Available to employees with at least 180 contributions, up to two years before reaching the applicable retirement age. A reduction factor applies.
• Old-Age Indemnity: Available to insured individuals who have accumulated fewer than 180 contributions.

Under the Unified Capitalization System with a Solidarity Guarantee:

• Insured individuals aged 65 whose accumulated contributions are fewer than 120 contributions are not guaranteed the universal minimum pension of B/.144.00. Instead, they will receive the amount resulting from the old-age pension calculation under the contributory solidarity capitalization component.
• Insured individuals aged 65 whose accumulated contributions exceed 120 contributions but are equal to or less than 240 contributions are guaranteed the universal minimum pension of B/.144.00, provided that the pension calculation results in an amount equal to or lower than that figure.
• Insured individuals aged 65 whose accumulated contributions are fewer than 240 contributions and whose pension calculation is equal to or greater than the universal minimum pension of B/.144.00, but equal to or less than the guaranteed solidarity pension (B/.265.00), will receive the amount resulting from the old-age pension calculation under the contributory solidarity capitalization component.

8. What happens to the contributions I have already paid throughout my career?

Your contributions do not disappear. Accumulated contributions remain in the member’s individual account and form the basis of the contributory solidarity capitalization component.

9. What if I worked several years without contributing or have contribution gaps?

Contribution gaps reduce the total accumulated contributions and may affect the pension amount or eligibility for certain retirement benefits.

Contributions and Employer Obligations

10. Will the employee contribution deducted from my salary increase?

No. The employee contribution remains at 9.75% of earned salary.

11. How much will the employer contribution increase?

It increases gradually:

• Effective April 1, 2025: the employer contribution rate increases from 12.25% to 13.25% (+1%).
• Effective March 1, 2027: the employer contribution rate increases from 13.25% to 14.25% (+1%).
• Effective March 1, 2029: the employer contribution rate increases from 14.25% to 15.25% (+1%).

12. What happens if the employer increases the employee’s salary by more than 30% before retirement?

The law establishes a control mechanism for salary increases exceeding 30% over a five-year period, treating them as abrupt salary increases. If irregularities are detected, the calculation of the pension benefit may be affected. Employers are therefore advised to formally document any significant salary increase.

13. Does retirement automatically terminate the employment contract?

No. Retirement does not automatically end the employment relationship. If the employee continues working, contributions to the CSS must continue.

Independent and Foreign Workers

14. Must independent workers contribute to the CSS?

Yes. All self-employed employees who enter the system on or after March 18, 2025, are covered by the new system. For Disability, Old Age, and Death (IVM in Spanish) coverage, they must contribute 9.36% of their contributory income.

On a voluntary basis, they may also enroll in Sickness and Maternity coverage by contributing 8.5% of their declared income, which may not be less than B/.800.00 per month.

15. Must foreign employees also enroll in the CSS?

Yes. All employees, whether Panamanian nationals or foreign nationals, are required to enroll in the Social Security Fund (CSS). No entity may prevent migrants from being affiliated with the CSS on the basis of work permit or immigration status requirements.

In addition, within 24 months of the reform’s entry into force, the CSS and the Ministry of Labor must implement an automated enrollment system linked to employment contracts.

16. Should I switch to the new system or stay where I am?

It depends on your individual circumstances, including the subsystem to which you currently belong, the amount of time remaining until your retirement, and your salary history. We recommend reviewing your retirement projection through the CSS MiRetiroSeguro platform and consulting with a specialist before the voluntary migration deadline of August 18, 2026.

At ICAZA, GONZÁLEZ-RUIZ & ALEMÁN, we are ready to assist you with understanding and implementing this new law.

Contact us at eguardia@icazalaw.com for more information.