Decisive Week for Health and Pension Reforms in Colombia

This week marks a crucial period for Colombia’s health and pension reform plans, both significant government legislative efforts currently at a standstill in the Colombian Legislative Assembly. Over the coming days, key developments are expected that will determine if these proposals advance or are set aside because of insufficient backing.

The health reform proposal appears to be facing the most challenges, with a noticeable decline in support over the past month that seems conclusive. Initially opposed by conservative factions, the proposal has now also lost backing from some members of the liberal parties and the Party of the U senators. These shifts could be critical for the future of this contentious initiative aimed at enhancing public health administration in Colombia.

In contrast, the pension reform proposal appears to have a better chance of progressing, especially after an extraordinary session convened during Easter Week. The debate over this initiative mainly revolves around the contribution threshold that would require mandatory payments into the public system, highlighting the divide between the government and opposition.

Healthcare Reform mortally wounded

Following a request to dismiss the Healthcare Reform, which was supported by eight opposition members in a legislative committee—including a senator from the Party of the U—the Alianza Verde party’s representative proposed an alternative version to the government’s draft. This alternative has yet to gain significant backing.

Initially, it seemed that this third way could avoid the definitive filing of the law, as happened in 2023, but Fabian Diaz, a Green Party senator, has not been able to convince the representatives of the Historical Pact (the promoter of the original law) to reach an agreement to partially save the government’s proposal.

The opposition is in a hurry to start the final debate, as it currently has a sufficient majority to defeat the government’s proposal. It is expected that the discussion will take place between Tuesday and Wednesday, thus preventing the government from recovering some votes among the undecided or less belligerent representatives.

Meanwhile, the government coalition, the Historical Pact, has devised a strategy to challenge the eligibility of certain commission members who oppose the reform, a move that could backfire. The opposition has responded by seeking to disqualify some senators who support the government’s proposals.

Pension Reform

The pension reform goes hand in hand with health reform, as does the labor reform, which has not yet formally begun to be processed, since there is still plenty of time left until 2025. On the pension front, the government’s plan is focused on gradually extending the scope of financial benefits, guided by the principle of universality.

For this purpose, the integration and restructuring of the social security pension system is planned, starting with a solidarity pillar aimed at residents living in extreme poverty. In addition, the law is designed to include more workers in the pension system, in order to guarantee that in the future more Colombians will be able to collect a pension after reaching the retirement age: 57 for women and 62 for men.

“Fifteen million working Colombians do not contribute and we have more than four million Colombians who will never have a chance to retire,” said Jaime Dussan, president of the public entity Colpensiones.

So far, two pension models coexist in Colombia: the public one, through Colpensiones, and the private one, with a variety of companies that collect and manage the contributions. The government’s proposal does not seek to eliminate private companies, but, as in the case of health, to strengthen the state operator.

The contribution threshold, the major stumbling block

In this sense, it is intended that the new law will make it mandatory for all workers earning up to three minimum wages to contribute to Colpensiones, which is currently 72% of the country’s salaried workers. According to Dussan, if the legislative project promoted by the government is approved, 25 million Colombians will start contributing to the public fund.

In this project, the point that generates the most dissension is precisely the so-called “contribution threshold”. The opposition does not accept the threshold of three minimum wages as a framework for obligatory contributions to the public fund, seeking to lower this ceiling to continue favoring private funds. Thus, the alternative proposal put forward by conservative sectors is to lower this ceiling to 1 or 1.5 minimum wages as the threshold for mandatory contribution to Colpensiones.

The government has shown its willingness to study modifications in this aspect. The Minister of Finance, Ricardo Bonilla, said this could be a possibility if it is shown that it can overcome the fiscal hurdle: “If they show me that it solves the fiscal problem, we could think about it, but really, our calculations show that the lower the threshold, the more it costs the state,” said the minister last week.

Objective: to enable more people to retire

According to data from the Ministry of Labor, there is a notable imbalance between those who contribute to private funds and those who contribute to the public entity. In this sense, while the private funds have 19 million members, only 318,000 people are currently pensioned. In contrast, Colpensiones has 6.8 million affiliates and more than 2 million pensioners.

“These data reflect a structural imbalance that needs to be addressed within the framework of the pension reform to guarantee sustainability and equity in the system,” the Minister of Labor, Gloria Ines Ramirez, recently stated.

Likewise, included in the reform is the so-called “solidarity pillar,” which guarantees a basic income of approximately 225,000 pesos per month to those who have not yet reached retirement age.

For the government, the project is based on four pillars: the solidarity pillar (which would grant a monetary transfer to women aged 60 or older and men aged 65 or older in extreme poverty); the semi-contributory pillar (for women aged 60 or older and men aged 65 or older who have contributed to the pension system for at least 300 weeks); the contributory pillar (mandatory contributions for those who earn between one and three minimum wages), and the voluntary savings pillar (for contributors who want to make voluntary contributions to the pension system).

Long-term sustainability of the system

Today, in Colombia, there are 4.7 workers for every pensioner. In 2050, there will be only two workers per pensioner, which complicates the long-term sustainability of the system due to the change in the country’s birth rate, among other factors.

According to a report by the Independent Committee on Fiscal Regulation (CARF), if fewer people contribute to Colpensiones, there will be less need to pay pensions and return money from the system. CARF presented different scenarios depending on the amount of money people have to pay. If the threshold is three minimum wages, payments to Colpensiones would increase from 3% to 5% of the Gross Domestic Product (GDP) by 2060. With a threshold of two minimum wages, payments would be a little less than 4%, and with only one minimum wage, they would be 3.5% of GDP.

If the threshold is only one minimum wage, the government would have to give more money to Colpensiones initially because there would be fewer resources available. The CARF report notes that the lower the threshold, the faster the Savings Fund will be depleted due to reduced income.