Saving pensions

Much needed reform of Colombia's pension system looks hard to achieve.

Colombia has an unstable pension system which President Iván Duque vowed to reform during his presidential campaign. However, as his presidential term reaches its end, Duque has failed to bring forward reforms to end the weaknesses of the national pension system.

“Pensions are a sensitive issue for Colombia,” began a pension industry veteran, “there is a structural vulnerability in Colombia’s pension system and the decisions needed to solve it carry great political risks. Having said that, leaving things as they are will result in serious social problems.”

“Pensions are a sensitive issue for Colombia, there is a structural vulnerability in Colombia’s pension system and the decisions needed to solve it carry great political risks.”

Pension industry veteran, Colombia

An academic pensions researcher gave us the detail, “There are many problems. Firstly, the public and private systems compete rather than complement each other. Second, Colombia has a huge informal sector and informal workers won’t contribute to a pension scheme because they might be caught for evading taxes. Third, elements of the system are unjust, for example, police and army employees can retire early and their pensions pass to spouses and children. Finally, the younger generation do not have a culture of saving or thinking about the future.”

The result is that only one in four Colombians over 65 and one in three workers have a pension fund.

Last week, the Congress turned down a proposal which would have granted 460,000 pensioners the right to switch their pension funds to the public system. Juan Carlos Wills, Congressman of the Conservative Party, accused the government, and particularly the Ministry of the Treasury, of boycotting the measure due to the financial pressures that the government is experiencing in the context of the pandemic.

“Advancing these proposals will be difficult though, so much so that the last reforms were in 2003.”

Pension industry veteran, Colombia

Nevertheless, Colombian pensioners received more positive news from the Supreme Court last week, when a ruling obliged private pension funds to meet the fixed monthly pension payout. The ruling was issued following a claim from a pensioner who received a lower pension than the monthly fee agreed due to ‘market fluctuations’.

The debate over pension funds will have a paramount role in the 2022 presidential election campaign. Thus, the leading candidate in the polls, Gustavo Petro, a former mayor of Bogotá has proposed a new pension fund structure based on weekly contributions from the lowest income workers which would be complemented by the public pensions contributions to guarantee a fixed monthly payment in retirement. The pensions veteran concluded, “There are many reform proposals being debated by the candidates, and all serious proposals must eliminate opportunities for arbitration between the public and private systems. Advancing these proposals will be difficult though, so much so that the last reforms were in 2003.”

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