Pension reform would increase the liability of the system to 218% |  jubilation |  my finances

With the new legislature installed, the discussions of the pension reformwhich was approved in the first debate by the Seventh Commission of the Senate of the Republic on June 14.

This government initiative, which has undergone several changes during its process, needs a debate in the plenary of the senate and two others in the House of Representatives so that it can be sent for presidential sanction.

(Congress and Presidency prepare for the new legislature).

The most prominent modifications are those that impact the transition regimeso with the minimum age required to be a beneficiary of the solidarity and semi-contributory pillars.

The main goal of these adjustments is to benefit women in their pension situation and, despite the fact that the National Association of Financial Institutions (Anif) recognizes that it is an achievable goal, ensures that the measures that have been proposed represents a greater cost for public finances and that they failed to solve the underlying problems.

In the text approved in the first debate, it is ruled that women who have a minimum of 750 weeks of contributions and men who have at least 900 weeks of this same scopeThe norms established in Law 100 of 1993 will continue to be applied to them.

(Petro reforms get ready for their second ‘round’ in Congress).

At the same time, people who meet these requirements and lack, at least, 10 years to obtain their pension age, they will have two years to change regime.

Pension in Colombia

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In addition, other definitions, in which men and women are differentiated, it is the minimum age with the lime they will be able to access the solidary and semi-contributive pillars.

As originally stipulated, these two pillars required that all beneficiaries be over 65 years of age, along with other requirements. In the modifications it was protected that women can access these benefits from the age of 60.

(‘We are taking spending to maximum levels’: Carf).

Anif carried out an analysis to determine the fiscal impact of these changes and by how much the spending of the National Government would increase as a percentage of the gross domestic product (GDP).

One of the conclusions of said work was, first of all, that within the pillars solidary, semi-contributory and contributory marginal increases in the fiscal cost will be observed.

These increases are generated by the increase in the number of beneficiaries of the programs contemplated in the reform by reducing the age at which women can access themas well as the extension of the transition for the application of the reform in its entirety.

(Voluntary funds also went through an adjustment process).

It is worth clarifying that it is in the transition and the pension window in which the most important increase in the fiscal cost is observed. Already under the new transition, in which women who have contributed a minimum of 750 working weeks and men with 900 weeks and who are less than 10 years from retiring will be allowed to change regimes, the cost would amount to 20.1% of GDP by the year 2100.

This represents a figure 3.3 times greater than the previous cost and represents a fiscal pressure for the Government. The increase in the pension window occurs because there would be a greater number of people who could cause the regime change. Most of these people are low income. and it is in them that most of the contributions of the system are concentrated.

According to Anif calculations, the contributors who should travel when calculating their allowance will actually carry out the process. The cost generated by this change exposed in the reform is an additional 14% with respect to the original scenario that was raised in the bill.

(Government reforms would cause additional expenses not contemplated).

Under this logic, and taking into account the changes mentioned above, the Net Present Value (NPV) of the pension liability for 2100 would be 170.3% of GDP, which translates into an increase of 22.2% more in relation to the original proposal of the pension reform.

Pension

Pension

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Another aspect that Anif took into account was the effects of Ruling made by the Constitutional Courtwhich says that women can retire with a minimum of 1,000 weeks of contributions, an aspect that, with the law in force, is at 1,300.

Despite the fact that women face greater barriers when contributing to a formal job and it is more complex for them to meet the requirements to retire, Anif points out that it will reduce the number of working weeks to show that the savings that women will make is less.

(What the law says about liquidating more than 1,300 weeks of pension).

This leads to the fact that women’s savings, like the aggregate of public finances, will be affected, because higher subsidies will have to be financed. As a result, an additional increase in liabilities of 47.5% of GDP in 2023 is generated, as calculated by Anif.

This means that, in addition to the liability equivalent to 170.3% of GDP with the pension reform proposal, the decision of the Constitutional Court would increase it to 217.8% of GDP.

In this point, Anif urged the need to reduce the threshold of the public component of the contributory pillar to a minimum wage. «In that case, the subsidy would be truly limited and focused on the people who really need it.«.​

(The benefit that Colpensiones will maintain, even with the pension reform).

However, it is not clear what will happen to women who contribute more than 1,000 weeks and what replacement rate would apply to them. In the event that the additional weeks are given the green light, the liability would increase via subsidized seniorsbut if it is not allowed, there will be no incentives to make additional contributions, so assets for the average premium regime would no longer be received.

As he assures Anif, the biggest objection to the decision of the Constitutional Court is that The problems faced by women in the Colombian pension system will not be solved by reducing the number of weeks contributed.

Although there is salvation that there is a disadvantage in access to pensions by women compared to men, the Anif stated that the true origin of these differences lies in structural problems in the labor market, Therefore, as a way to guarantee equitable access, it is necessary to make an effort to guarantee equitable living conditions within the labor market.

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​*With information from EL TIEMPO – ECONOMÍA