Colombia Presents New Pension Reform Proposal

A few days ago, the Deputy Minister in charge of Employment and Pensions, Juan Carlos Hernandez, presented, on behalf of the government of Colombia, a comprehensive reform to the elderly protection system, based on President Gustavo Petro’s proposal seeking social justice through income proportionality and tax burdens.

The reform, titled “Change for the Elderly,” does not foresee any modifications to special regimes. In this regard, Finance Minister Ricardo Bonilla emphasized that “this pension reform initiative is aimed at private workers and public officials who are not under a special regime, that is, the entire workforce of Colombia, an economically active population of 24 million people.”

Similarly, Bonilla assured that “there are no reforms for the special regimes, which represent three points of the GDP to public coffers, lacking reserves or funds, indicating that the State provides the resources because what they collect for pensions falls short.”

A reform in three pillars

The presentation was made to the subcommittee on pension reform, a tripartite body comprising the business sector, unions, and the government. In this setting, ministry officials explained that their proposal rests on three pillars: the solidarity pillar with a basic income equivalent to half the legal minimum wage that will cover individuals who do not qualify for a pension; the contributory aspect for those earning up to four minimum wages who will make mandatory contributions to the scheme managed by Colpensiones, and the third pillar for individuals earning above 4 minimum wages who will make additional contributions to the Individual Savings Regime of Pension and Severance Fund Management Companies.

“The reform is designed with a focus on solidarity and rights, not on economic profitability, where the dignity of the elderly must be protected by the system, providing them with a solidarity-based and universal income,” expressed Deputy Minister Hernández.

“What we are aiming for is to generate greater coverage so that all elderly people who are currently unable to have a dignified old age have elements that allow them, with the support of the State, to release their resources and thus promote a dignified old age without having to rely on their families’ charity,” stated Labor Minister Gloria Ines Ramirez.

In this sense, the proposed government reform seeks to give precedence to the public pension system coordinated by the state agency Colpensiones, supplemented by private entities.

Objective: Expand the contributor base

According to labor ministry data, there are currently 2,312,000 pension recipients in Colombia. Among these, 54% receive the equivalent of the minimum wage, which is 1,160,000 Colombian pesos per month. Of the remaining 46%, about 387,129 retirees (16.74%) receive between one and two minimum wages, 513,023 (22.18%) receive between two and four salaries, 118,484 (5.12%) receive between four and 10, and those receiving “mega-pensions” of more than 10 minimum wages monthly are around 37,154, less than 2% of retirees.

However, the number of elderly people entitled to receive a pension is excessively low. Many who have already reached the age to stop working do not have the minimum number of working years required to qualify for a pension. In this regard, Luis Fernando Mejía, Director of the independent economic and social research center Fedesarrollo, states that “today, 25% of the elderly are outside this pension coverage, but this reform provides subsidies to people not within the pension system.”

Among those still of working age, the situation is similar: in 2023, there are about 14 million Colombians not contributing to any pension scheme, neither public nor private. Consequently, one of the reform’s objectives is to broaden the contributor base while also focusing on older people who lack access to pension payments.

Ricardo Bonilla emphasized this. “The reform aims to build a system of complementary pillars based on where pensioners are and those aspiring to retire, complemented by capitalization funds where the money is, with three topics of debate: the threshold, the fund’s characteristics, and the transition period.”

This final week of November, the subcommittee will restart its meetings to address a consensus-based project before advancing it for parliamentary discussion in the Colombian Congress.