The call is for the two remaining debates in the House of Representatives to responsibly and informedly consider the fiscal implications.
• On April 23, the Senate of the Republic in its second debate approved the complete articles of the pension reform. Some of the most critical articles include: the contribution threshold, the transition regime, the entry into force of the law, the minimum weeks requirement for women, the administration of the Savings Fund and possible reductions in age parameters for ethnicities and peasantry.
• With the threshold approved at 2.3 SMLV for the Contributory Pillar, the total liabilities of the system amount to 179.3% of GDP. From ANIF we reiterate the importance of reducing it to 1.0 SMMLV.
• Under the original Bill, the transition regime liability would be equivalent to 16% of GDP in Net Present Value (NPV) by the year 2100. However, reducing the requirement to 900 weeks for men and 750 for women implies that the pension liability would rise to 28.3% of GDP, an increase of 12.3 percentage points compared to the liability estimated in the original Bill.
• The reduction of weeks for women and the new article that includes a downward adjustment in the years and weeks requirements for ethnic groups, represent additional fiscal pressures for the system that must be discussed in future debates.
ANIF has repeatedly stressed the importance of designing a reform that attacks the three fundamental problems of the pension system: low coverage, inequality and financial unsustainability. In that sense, on April 23, the Senate of the Republic in its second debate approved 100% of the articles of the pension reform. Among the most important articles are:
The Contributory Pillar contribution threshold of 2.3 SMMLV; The transition regime The administration of the Savings Fund The minimum requirement of weeks of contributions for women the entry into force of the reform. Understanding the potential economic and social impact of this reform, it is crucial that these articles approved in the Senate be carefully analyzed and their true scope considered before being debated in the House of Representatives. Attention to these aspects will be essential to ensure a fair and sustainable design of the pension system.
Countered decisions
One of the most critical aspects of the proposal focuses on the contribution threshold for the Contributory Pillar, which was originally established at three minimum wages (SMMLV). ANIF and other economic study centers have pointed out that this choice of threshold exacerbates the problem of regressivity of the current system, since it would transfer to the RPM all those whose income is lower than this value, a group that represents close to 80% of the population. .
Although the new threshold established at 2.3 SMMLV implies a saving in the pension system’s liabilities of 14.6pp compared to the threshold of 3 SMLV, the approved Transition Regime significantly increases the system’s liabilities. With the above, the gain of having a lower threshold is offset by a more generous transition window
Specifically, the calculations show that, under the original Bill, the liability of the transition regime established in 1000 weeks would be equivalent to 16% of GDP in Net Present Value (NPV) for the year 2100. With the articles approved in the Senate , which reduces the transition requirement for men and women to 900 and 750 weeks of contributions, respectively, would rise to 28.3% of GDP, which is equivalent to an increase of 12.3 percentage points compared to the liabilities of the original project. With this, the total liabilities of the system would rise to 191.6% of GDP. For all of the above, decisions in financial terms of the pension system must not only include a reduction in the threshold, which ANIF has insisted must be 1 SMMLV, but also a less lax transition regime.
On the other hand, when considering the ruling of the Constitutional Court and adding the approved article of a reduction of 50 weeks of contributions for each child for women, up to a maximum of three, it implies that they will be able to retire even with 850 weeks. Although the reduction pursues a noble objective, it has important fiscal repercussions. We understand that women face greater interruptions in their working lives, which is why they achieve less savings. But that is precisely the reason why reducing the weeks of contributions increases the implicit subsidy of your pension allowance and with it the liability. “At ANIF we reiterate that the reduction in weeks does not attack the root of the problem. A more flexible and inclusive labor market is necessary to achieve equity in women’s access to pensions.”
One system, many exceptions
One of the new inclusions in the articles approved by the Senate involves “differential treatment for indigenous peoples, black communities, Afro-descendants, Raizals, Palenqueras and peasants.” Within the new article, a downward reduction in the number of weeks and years requirements is established for people who are part of this population segment. The above, under the argument that their life expectancy is lower compared to the average of the population. While it is true that some studies establish differences in life expectancy for this group, the gap has been reduced due to improvements in conditions and access to health, as well as a decrease in general, maternal and infant mortality rates. .
According to DANE’s ethnic-racial population projections, by 2024 this population (excluding farmers) amounts to 6.3 million people. If the peasant population (15.2 million) is added, the total number of beneficiaries could rise to 21.5 million. The above implies that almost half of Colombians would be subject to different rules of the game. This represents a risk for the system, since the differential treatment of this population and its consequent fiscal implications are not yet clearly known.
On the other hand, one of the most critical points approved was the entry into force of the reform for July 1, 2025. The change that this law represents for the pension system is not minor and therefore a prudent time is required to move towards the new model. In addition, Colpensiones will need more time to make changes in operational and logistical terms and thus receive the new affiliates who will enter the Average Premium Regime (RPM).
Finally, and according to the new article incorporated regarding the administration of the Savings Fund, ANIF highlights the fact that it is the Banco de la República that assumes this responsibility. The above, since the independence of this organization generates credibility around the administration of resources, essential to guarantee that contributions are solely and exclusively used for the payment of future pensions and not to finance current expenses. This will encourage the Fund’s search for profitability, which is essential to extend its duration and thereby reduce the fiscal cost on the system.
recommendations
With the above, ANIF reiterates the call for the two remaining debates in the House of Representatives to consider in a responsible and informed manner the fiscal implications of the main articles approved by the upper house. In particular, the repercussions of the contribution threshold of the Contributory Pillar and the transition regime, since as we mentioned, almost completely nullify the resulting tax benefits. The best and most direct way to preserve the fiscal sustainability of the system is by reducing the contribution threshold or the possibility of it being reduced in the future.
