Technical Standards for the Calculation of the Annual Additional Benefit for Pensioners of the Public Pension System

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 8 CNBCR-01/2023 NSP-80 TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM Approval: 01/26/2023 Validity: 01/26/2023

THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR, CONSIDERING:

I. That by Legislative Decree No. 614, dated December 20, 2022, published in the Official Journal No. 241, Volume No. 437, of the 21st of the same month and year, the Comprehensive Law of the Pension System was issued. II. That Article 2, letter m) of the Comprehensive Law of the Pension System establishes that the benefits established in said Law shall apply to affiliates of the Public Institutes. III. That Article 149 of the Comprehensive Law of the Pension System establishes that the Public System, which includes the Pension Unit of the Salvadoran Social Security Institute and the Salvadoran Pension Institute, must provide benefits in accordance with said Law and its own creation laws. IV. That Article 153 of the Comprehensive Law of the Pension System establishes that pensioners of the Public Pension System will have an annual additional benefit in the month of December of each year with a limit equal to that which the Central Government establishes as the Annual Complementary Salary in the concept of Christmas bonus for employees of the public sector. V. That Article 159 of the Comprehensive Law of the Pension System establishes that the Central Reserve Bank of El Salvador will issue the necessary Technical Standards that allow for the development of what is established in the referred Law. VI. That Article 99, first paragraph, of the Law on Supervision and Regulation of the Financial System, establishes that the Central Reserve Bank of El Salvador, by virtue of said Law, is the institution responsible for the approval of the technical regulatory framework that must be issued in accordance with this Law and other laws that regulate the supervised entities. In fulfillment of this responsibility, the Central Reserve Bank of El Salvador must ensure that the regulatory framework applicable to the financial system is periodically reviewed, seeking its timely update. VII. That Article 101, fourth paragraph, of the Law on Supervision and Regulation of the Financial System, establishes that the powers to approve, modify, and repeal technical standards that must be complied with by the members of the financial system and other supervised entities, which were attributed to the Superintendencies or the Director Boards of the Superintendencies whose organic laws were repealed by the same Law, are transferred to the Central Reserve Bank.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 2 of 8 CNBCR-01/2023 NSP-80 TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM Approval: 01/26/2023 Validity: 01/26/2023

THEREFORE, by virtue of the regulatory powers conferred upon it by Article 99 of the Law on Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to establish the procedure to be followed by the obligated subjects for compliance with these Standards for the calculation of the Annual Additional Benefit to which pensioners of the Public Pension System are entitled, in accordance with what is established in Article 153 of the Comprehensive Law of the Pension System.

Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Standards are: a) Salvadoran Pension Institute; and b) Salvadoran Social Security Institute.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) B.A.A.: Annual Additional Benefit; b) ISSS: Salvadoran Social Security Institute; c) INPEP: National Institute of Pensions of Public Employees prior to the entry into force of the Law Creating the Salvadoran Pension Institute; d) Pension Institute: Salvadoran Social Security Institute or Salvadoran Pension Institute; e) Pensioner: Insured person who enjoys a pension for disability or old age in the Public Pension System; and f) Survivor Pensioner: The Beneficiary, whether by widowhood, orphanhood, ascendance, or cohabitation, who has obtained a pension in the Salvadoran Social Security Institute or the Salvadoran Pension Institute.

CHAPTER II ON THE METHOD OF CALCULATION OF THE B.A.A. FOR PENSIONERS

Art. 4.- When the pensioner receives a monthly pension equal to the minimum pension established, they will receive in the concept of B.A.A., 100% of the minimum pension.

Art. 5.- When the pensioner receives a monthly pension that exceeds the minimum pension, up to the equivalent of two minimum pensions, they will receive in the concept of B.A.A. the equivalent to the minimum pension plus seventy-five percent of the difference between their pension and the minimum pension, in accordance with the following calculation: a) Subtract the Assigned Monthly Pension from the Minimum Pension, PMA - PM = Difference Where: PMA: Assigned Monthly Pension PM: Minimum Pension b) The Difference obtained in letter a) of this article must be multiplied by seventy-five percent Difference * 0.75 = Product c) The value of the Minimum Pension must be added to the Product obtained in letter b) of this article PM + Product = B.A.A. d) The result of letter c) will be what corresponds to them as B.A.A.

Art. 6.- When the pensioner receives a monthly pension greater than the equivalent of two minimum pensions, they will receive in the concept of B.A.A. the equivalent to 1.75 times the minimum pension, plus fifty percent of the difference between their pension and 1.75 times the minimum pension, in the following manner: a) Multiply the value of the Minimum Pension by one point seventy-five PM * 1.75 = Product1 b) To the Assigned Monthly Pension, subtract the Product1 obtained in letter a) of this article PMA - Product1 = Difference c) The Difference obtained in letter b) of this article must be multiplied by fifty percent Difference * 0.50 = Product2

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 3 of 8 CNBCR-01/2023 NSP-80 TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM Approval: 01/26/2023 Validity: 01/26/2023 d) The Product1 obtained in letter a) of this article must be added to the Product2 obtained in letter c) of this article. Product1 + Product2 = B.A.A. e) The result of letter d) of this article will be what corresponds to them as B.A.A. In none of the cases mentioned above, the B.A.A. referred to in these Standards shall exceed the limit fixed by the Central Government, as Annual Complementary Salary in the concept of Christmas bonus for employees of the Public Sector.

Art. 7.- When it concerns pensioners with partial disability, who earn a pension equal to 70% of the minimum pension, they will be entitled to 100% of their pension in the concept of Christmas bonus.

CHAPTER III ON THE METHOD OF CALCULATION OF THE B.A.A. FOR SURVIVOR PENSIONERS

Art. 8.- In the case of survivor pensioners, the B.A.A. will be determined starting from the reconstruction of the deceased's pension. This reconstruction will be carried out from the pension received by the beneficiary, using a simple rule of three, taking into consideration that said pension represents a percentage of the pension to which the deceased would be entitled if they were alive. The mechanism to carry out the reconstruction is illustrated below: PS ------------------- % PC ------------------ 100% Where: PS: Sum of the valid survivor pensions generated by a deceased person, on the date when the B.A.A. is to be calculated. PC: Pension of the deceased, to which they would be entitled if they were alive. %: Sum of the valid pension percentages corresponding to the same deceased person, in accordance with the regulations under which it was granted and depending on the type of beneficiary. When there is only one beneficiary, the value of the pension percentage that corresponds to them will be taken within this rule of three, attending to the considerations mentioned above. To find PC, the following operation will be applied:

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 4 of 8 CNBCR-01/2023 NSP-80 TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM Approval: 01/26/2023 Validity: 01/26/2023 PC = PS * 100 % %

Art. 9.- In cases where, even after reconstructing the deceased's pension, it is lower than the minimum pension, the latter will be taken as reference. After having reconstructed it, the B.A.A. that would correspond to the deceased, if they were alive, will be calculated, applying the provisions contained in Chapter II of these Standards, and taking into account that the amount of the reconstructed pension will be taken as the Assigned Monthly Pension.

Art. 10.- Once the B.A.A. of the deceased is calculated, it will be distributed among the beneficiaries in the percentages indicated below, depending on the case: a) 60% for the spouse or cohabitant, when there are no children entitled to a pension; b) 50% for the spouse or cohabitant, with children entitled to a pension. This percentage will increase to 60% when such children cease to be entitled to a pension; c) 25% for each of the children entitled to a pension; and d) 20% for the father and 20% for the mother, or 30% if only one of them exists. When there is no spouse or cohabitant entitled to a pension, the percentage established in letter b) will be distributed among the children entitled to a pension. When there are no spouse, cohabitant, or children entitled to a pension, the percentages established in letter d) will be 40% for the father and 40% for the mother, or 80% if only one exists entitled to a pension. In no case shall the sum of the reference pensions exceed 100% of the reference pension of the deceased affiliate; in case of exceeding said percentage, a weighting will be made based on the percentages established in this article.

CHAPTER IV ON THE GRANTING OF THE B.A.A. WHEN THE OLD AGE, DISABILITY, OR SURVIVORSHIP PENSION WAS GENERATED IN A COORDINATED ISSS-INPEP MANNER

Art. 11.- For the payment of a B.A.A. corresponding to a pensioner or beneficiary who is receiving a coordinated ISSS-INPEP pension, the following provisions must be taken into consideration: a) Each Pension Institute must identify in their Databases of pensioners for old age, disability, and survivorship, those to whom the pension is paid in a coordinated manner. In case they cannot do so, they must cross the information contained in their databases with that of their counterpart and, by mutual agreement, establish the universe of pensioners for old age, disability, and survivorship who are in this category. b) Once the universe of pensioners to whom the B.A.A. will be paid by coordination is established, 100% of each pension must be obtained by adding the partial amounts that each Institute is paying. To facilitate this action, the Institutes must exchange, in electronic media, the following information: i. The amount of the pension that each institute is paying. ii. The percentage that said pension represents in relation to 100%. iii. Any other information that each institute considers pertinent. Regarding letter i), when it concerns survivorship pensions, they must exchange information related to the sum of the valid survivor pensions in each Institute and the type and number of beneficiaries to whom they are being paid. Regarding letter ii), it must be taken into account that each Institute must know in what proportion it is participating in the financing of a coordinated pension, from the date of its granting. The amount that represents 100% of the pension must be the same in the two pension institutions. Likewise, the percentages that represent the concurrence of each Institute must sum to 100%. For the case of survivorship pensions, the partial amounts will be summed for each type of beneficiary and the pension of the deceased will be obtained through a rule of three. c) Once each Institute has established the 100% of the amount of the pension for old age, disability, and those corresponding to the deceased of survivorship pensions, the B.A.A. of the pensioner will be calculated, or, if applicable, the B.A.A. to which the deceased would have been entitled if they were alive, taking into consideration what is provided in Chapters II and III of these Standards. In case it is determined that only one of the institutes is paying the pension and that, in the other, the pension is still in process, the 100% of the total amount of the pension will be taken as reference, regardless of whether the other institute is not yet paying its respective concurrence. Then, the corresponding B.A.A. will be obtained applying what is provided in Chapter II depending on the case, after which the amount of the Annual Additional Benefit to be paid will be calculated, taking into account only its concurrence. The other portion of the B.A.A. will be paid by the

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 5 of 8 CNBCR-01/2023 NSP-80 TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM Approval: 01/26/2023 Validity: 01/26/2023 Corresponding Pension Institution on the date it makes the first payment of the pension. In the case of survivorship pension, the deceased's pension will be reconstructed, taking as reference the 100% of the pension generated by the deceased, and the Annual Additional Benefit will be calculated, applying the provisions of Chapters II and III of these Standards. d) Once the B.A.A. is calculated, the coordinated financial responsibility will be determined applying the same percentages in which the coordinated pension was granted. e) In the case of the B.A.A. corresponding to survivorship pensioners, once the amount that each Institute will finance is determined, said amount will be distributed among the beneficiaries, applying the valid percentages according to the number and type of beneficiaries.

CHAPTER V OTHER PROVISIONS AND VALIDITY

Art. 12.- The B.A.A. corresponding to those survivorship pensioners who, for any cause, had their pension suspended during the period between the month in which the Institute prepares the B.A.A. payroll until the month of December of the same year, will be paid up to the date in which the pensioner recovers the right to the pension.

Art. 13.- The results of all operations performed must be expressed with two decimal places, rounding the second decimal to the immediate higher value if the third decimal is equal to or greater than 5. Notwithstanding the above, the operations performed in obtaining percentages must be carried out using 5 decimal places, rounding in the manner related in the previous paragraph.

Art. 14.- In no case, the amount of the B.A.A. to be paid to a pensioner for old age, disability, or survivorship, may be greater than the amount of their pension. Therefore, in case the calculation results in a higher amount, the amount of the respective pension must be granted in the concept of B.A.A.

Art. 15.- For the purposes of calculating the B.A.A. of the beneficiaries referred to in Chapter IV of these Standards, the deceased's pension will be reconstructed taking into consideration only the pensions that are valid in both Institutes.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 6 of 8 CNBCR-01/2023 NSP-80 TECHNICAL STANDARDS FOR THE CALCULATION OF THE ANNUAL ADDITIONAL BENEFIT FOR PENSIONERS OF THE PUBLIC PENSION SYSTEM Approval: 01/26/2023 Validity: 01/26/2023 Art. 16.- For affiliates and beneficiaries who, on the date of payment of the B.A.A., had a pension in process, whose start date is prior to the year in which the B.A.A. is to be paid, they will be entitled to receive the B.A.A. retroactively, calculated in accordance with what is established in these Standards.

Sanctions Art. 17.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal Art. 18.- These Standards repeal the Instruction "Calculation of the Annual Additional Benefit for Pensioners -002/2000), approved on September 18, 2000, by the Superintendency of Pensions, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects Art. 19.- The aspects not provided for in regulatory matters in these Standards will be resolved by the Central Reserve Bank of El Salvador through its Committee of Standards.

Validity Art. 20.- These Standards will enter into force as of the twenty-sixth of January of two thousand twenty-three.