Panama: Sweeping state pension reforms

Employer Action Code: Act

Law No. 462 of 2025 introduces major reforms to the financing and structure of Panama’s state pension system. Changes include increasing employer contributions, phasing out a defined benefit (DB) pension program and creating a new Single Solidarity Fund (Fondo Unico Solidario – FUS) to fund all system benefits, which includes assets from the existing DB and account-based programs.

Key details

• The general employer social security contribution rate (for retirement, death, disability, sickness and maternity benefits) will increase by one percentage point every two years, until reaching 15.25% of pay in March 2029. The first increase (to 13.25%) took effect on March 18, 2025. The general employee contribution rate remains unchanged at 9.75%
• Prior to the reforms, two pension programs operated in parallel: 1) a DB program (Exclusive DB Subsystem – EDBS) for individuals age 36 or older as of January 2006, and 2) a “mixed” program for younger people and new joiners made up of a pay-as-you-go DB component similar to the EDBS but more limited as well as a funded individual account component. The reforms merge these programs into a new plan (Unified Capitalization System [UCS] with Solidarity Guarantee), providing funded account-based benefits subject to a minimum guaranteed pension of 265 Panamanian balboas per month. Contributions will go to the new FUS, which is managed by the Social Security Fund (Caja de Seguro Social – CSS). The new plan applies to all new social security members from March 18, 2025; existing members may opt in until March 18, 2026. Members of the existing EDBS program who are expected to retire within the next seven years will remain in the EDBS, which is scheduled to be phased out by March 18, 2032. Members of the existing mixed benefit program who have not retired by that date will be automatically enrolled in the UCS
• Pension eligibility requirements are unchanged (i.e., normal retirement age remains at 57 for women and 62 for men, and a minimum of 240 months of insured employment is required for a full pension). An earlier version of the legislation would have increased normal retirement age, but this was controversial and has been deferred pending future actuarial analyses. Any future change would need to be legislated
• Under the UCS, pensions in payment will be adjusted annually based on the change in the consumer price index

Employer implications

While these changes primarily affect the state pension framework, the immediate impact for employers is the gradual increase in social security contributions. With 26% of surveyed companies offering supplemental retirement benefits — most commonly a defined contribution plan — employers should assess whether their current retirement plans remain aligned with workforce needs.

Contact

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Mariano Thompson

Director, Integrated & Global Solutions

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