Argentine President Javier Milei will sign a decree changing the formula used to calculate pensions, the government announced Friday. The new formula, which will take effect in April, will link pensions to inflation.

Pensioners will receive a one-off 12.5% increase that month to compensate for inflation since December.

The change will be made by decree due to the “impossibility of solving the problem of retirement payments through an ordinary legislative discussion with the promptness it requires,” according to a communiqué from the President’s Office.

Pensions are currently calculated with a formula implemented by the Alberto Fernández administration. It is based on wage increases and the income of the ANSES social security bureau, and does not incorporate the inflation rate. That meant the previous administration had to give regular lump sum payments to account for inflation.

The communiqué said the Fernández-era formula had “caused damage”. 

However, the new formula will not improve pensioners’ incomes because the 12.5% increase is far below the 71.3% cumulative inflation since Milei came to power. Milei’s administration has obtained a fiscal surplus in state spending mostly through sharp cuts to pensions, according to the Center for Argentine Political Economy (CEPA) think tank.

“Of every 100 pesos slashed in February, 35 corresponded to pensions cuts,” CEPA wrote in a recent report. “This trend, which has been present since January, reflects the strong impact on pensioners’ income of the inflation unleashed after Milei’s inauguration and the lack of government measures to compensate for it.”

In February, an International Monetary Fund  report called for Argentina to “preserve the real value of pensions given their sharp decline in recent years.” The Fund has consistently said that the government should “protect the vulnerable” as it implements austerity.

The official communiqué said the new formula would “solve the problem once and for all.” However, deputy Itai Hagman of the Peronist Unión por la Patria opposition said on X that the new formula would instead freeze pensions “at one of its lowest levels in history.” 

A report by the Institute for Argentine Social Development (IDESA) said pensions in December 2023 were lower than the 2023 full-year average, and near their lowest since the year 2000 — payments bottomed out in 2002.

“Not only are pensioners paying for the austerity measures, but even if economic policies are successful, the recovery will not be for them,” Hagman wrote.

The government’s release also says that the administration hopes to reform the pension system to make it more sustainable and “add mechanisms for private saving”. That change, together with a labor reform, will be discussed with the opposition during the May 25 “May Pact” meeting, it added.