Pension reform was settled with criticism for the role of AFP and costs

Pension reform was settled with criticism for the role of AFP and costs

The package of reforms to the Colombian social security system was completed yesterday, with the filing of the pension reform. President Gustavo Petronext to the Minister of Labor, Gloria Inés Ramírezpresented their ‘Change for old age’ project, which proposes a system of pillars, the creation of an income for adults over 65 without pension coverage, as well as other changes in the system.

The pension project has a social objective: that gradually every older person, man or woman, who completes their working hours and age, has a pension. Additionally, recognizing that a good part, six out of ten older adults today do not have any access to a pension or a pension bonus, they can have access to a minimum income that gives dignity to their lives.”, emphasized the first president.

(Download and consult the text of the pension reform here).

The President assured that the reforms made in the 1990s have not given the expected results in coverage and that is why a general change is proposed. “The RAIS (individual savings scheme) no longer saves, its income is equal to its output, even though it has a large affiliate base. The Colpensiones system has more outputs than inputs and it is the government that pays those pensions. At this moment what balances the pension system is the GovernmentPetro said.

Likewise, the Minister of Labor celebrated the fact that “put under consideration a pension reform project where the pension is recognized as the right that ensures a dignified life”. He also commented that what the Government is presenting is a comprehensive social protection system for old age, with which it is intended to structurally modify the Colombian pension system.

The project proposed by the Government is based on a four-pillar scheme, in which both Colpensiones and the Pension Fund Administrators (AFP) participate. The first pillar will cover 2.59 million people over 65 and in a vulnerable condition with a bonus of $223,800, equivalent to the extreme poverty threshold projected for 2024.

(Reactions to the filing of the pension reform).

The semi-contributory pillar will grant a life annuity to people who could not retire but who have weeks of contributions; while in the contributory pillar, there will be all the people affiliated to the system, where Colpensiones will receive contributions up to the first 3 monthly legal minimum wages in force (smlmv) quoted and private funds will receive contributions that exceed 3 smlmv.

The last pillar, voluntary individual savings, will be for those people who have the ability to pay and can save to obtain a better pension and will go to the AFPs.

Another novelty proposed by the project is the creation of a Savings Fund, contained in article 24 of the project, with which the Government seeks to avoid an impact on the stock market. This would allow the entity to purchase TES through a special account managed by Colpensiones.

(This is how the pension system that is in force in Colombia works).

The fund’s resources would be made up of contribution income received from the average premium component managed by Colpensiones.

Another point that has drawn attention It is the pension bonus for mothers who have dedicated part of their lives to caring for their children and which grants a reduction in the number of minimum weeks required for the recognition of the pension, from 50 weeks for each child without exceeding three children.. This was left in article 36.

The project also opens a pension window for up to two years, which allows people with more than 1,000 weeks of contributions, and who remain in the current regime, to request a regime transfer, despite being in the last years of contributions to pension.

After learning the final text of the pension reform, one of the first voices to speak out was that of Mauricio Santamaría, president of the Anif economic studies center.

The entity presented an estimate of the impact that the reform would have on public finances, and according to Anif, from a fiscal point of view, “the high pension liability, which by itself today reaches a figure close to 110% of GDP, would more than double and would come to represent up to 249% of GDP estimated for 2023”.

(Congress has already approved 84% of the PND in its first debate).

That, according to the entity, represents a Net Present Value (NPV) in 2070 close to $3.700 trillion.

The reform as proposed by the government would deal a strong blow to savings, fiscal sustainability and would put the possibility of paying future pensions at high riskSantamaria said.

From elsewhere, José Ignacio López, director of economic research at Corficolombianaassured that “In view of the Government’s Pension Reform proposal, it is worth insisting that, with an average premium pillar of up to 3 minimum wages, and despite the proposed new Savings Fund, the country loses 1% of GDP in domestic savings, as a result of lower pension savings”.

(94% of Colombians defend free choice to contribute to a pension).

From the to Colombian American Chamber of Commerce, AmCham Colombia, its president, María Claudia Lacoutureassured on the other hand that one should think about encouraging formality in the labor market in order to strengthen contributions, and therefore, the pension system.

The legislative package that the Government has filed in Congress in social matters must be based on the tools for labor formalization and improve the conditions of workers today and for their retirement without affecting the business fabric. The best pension reform will be to encourage job creation, with fair remuneration and that allows contributions to the social security system and that the worker has the freedom to choose which system best suits his old age.”Lacouture said.

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