Relive the filing of the pension reform in Congress

Pension liabilities: new alert from Fedesarrollo

One of the calls made by various experts, academics, unions and businessmen to the Government is to analyze the joint impact of their reform packages to the social security system: work, pension and health (despite the fact that the latter is reeling from the lack of support from the parties in Congress).

For this reason, the Center for Economic Studies Fedesarrollo presented an analysis of labor and pension reforms, in which it ensures that the fiscal impact of the pension reform would translate into an increase of 30.2 points of GDP in the liabilities of the old-age protection system.

(Ministry of Labor says that it will continue to subsidize job creation in SMEs).

According to the entity, this increase breaks down into a rise of 12.5 points of GDP product of solidarity pillar8.4 points of GDP for the semi-contributory pillarand 9.3 points of GDP in the contributory pillar.

Fedesarrollo also mentioned that its estimates differ from what was presented by the Treasurywhich in recent days assured that with the project the pension liability will be would reduce by 12.3 points of GDP.

(The risks of Colombian companies when requesting loans).

The Ministry of Finance does not include in the cost of the reform the value of the solidarity pillar, which is the most expensive of all (12.5 points of GDP according to our calculations). This value should be included because what is relevant for fiscal sustainability is the fiscal cost of the new old-age protection system, not just that of one of its components.”, indicated the institution.

In addition, the Ministry makes the calculations with cut to the 2070a calculation that, according to Fedesarrollo, has the drawback of leaving out 30 years in which the protection system becomes more deficient than in the current situation, while Fedesarrollo makes its estimates every year 2100.

(Pension reform accounts generate more doubts and criticism).

The Ministry is more optimistic in the assumption of the real interest rate used to discount the net flows of the system: it uses a rate of 4%, while the one used by Fedesarrollo is 3.4%.”, said the entity.

He Executive Director of Fedesarrollo, Luis Fernando Mejíaconcluded that the pension reform “points in the right direction”, but that its current version generates “an excessive impact on private savings increases the pension liability in its contributory component and, under current conditions, generates insufficient savings”.

(‘The opportunity to adjust pension parameters is being lost’).

On the labor reform side, Fedesarrollo recognizes that although this project focuses on protecting current formal employees, its measures will have undesired consequences for the informally employed and the unemployed.

The objectives of increasing pension coverage and reducing labor informality are really two sides of the same coin: it will not be possible to improve coverage in the mandatory pension system if efforts are not made to reduce labor informality”, indicated Mejia.

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