The Minister of Finance, Ricardo Bonilla, put on the table a critical analysis of the financial challenges facing the pension reform in Colombia.
During his speech at the Asofondos congress, Bonilla highlighted the need to reform the pension system to guarantee its long-term sustainability.
In his speech, Bonilla stressed that the pension reform project requires that a greater number of members go to Colpensiones, which is the public pension system in Colombia. In addition, he pointed out that the solidarity pillar of the pension system needs resources to remain viable.
According to the minister, the contributory pillar, the central object of the discussion, reveals an imbalance in pension liabilities that the reform seeks to mitigate. In a scenario without reform, this imbalance would be 59.8%, while after the reform it would decrease to 54%, as long as a threshold of three minimum wages is established.
However, Bonilla warned that, under different salary thresholds, the viability of the system varies considerably. In the most challenging scenario, with a threshold of one minimum wage, there would be no fund available for pensions beyond the year 2050.
“Four minimum salaries, the fund created would last until 2074, if there were three, it would last until 2070, if there were two and a half salaries, until 2069, with two salaries until 2065, with one and a half salaries until 2050 and one minimum salary there is no bottom. Colpensiones would not have money to accumulate, since the money comes and is paid to the pensioners,” said the head of the Treasury portfolio.
And he added: “The higher the threshold the pensioners’ payment commitment can be met and the less public dissavings would be.”
Likewise, the minister emphasized the importance of establishing an adequate threshold to guarantee compliance with payment commitments to pensioners and reduce public dissavings. In addition, he highlighted the competition between pension systems and the need for reforms to avoid a greater departure of members from the funds to Colpensiones.
Bonilla also pointed out that pension funds register profitability, but that a significant part of their assets is invested in Treasury Securities (TES) due to their performance. This situation, he explained, contributes to public dissaving through interest payments on the public debt.
“The funds register profitability and that is what they are for.” And he stated that: “Of the $405 billion that they have under administration, $146 billion is in TES and the main reason is that it gives returns, that is, from dissavings since they are interest payments on public debt.”
The minister’s call highlights the urgency of addressing the financial complexities of the Colombian pension system and the importance of implementing structural reforms to ensure its long-term sustainability.
Given the recent statements by the Minister of Finance, Ricardo Bonilla, about the Colombian pension system, Asofondos issued a detailed response to clarify key points and offer its perspective on the situation.
The union highlighted that Colpensiones, as an older regime, has more pensioners than private funds, with a higher average age in its pensioner population. While in Colpensiones the average age is 51 years, in the Individual Savings Regime with Solidarity (RAIS) it is 36 years, which makes a significant difference in the dynamics of the systems.
Furthermore, this union pointed out that contributions in the Rais generate a difference in the size of the pension, since only 11.5% goes to the individual account, while in the common fund it is 13%, which results in a pension approximately 30% lower in Rais. This, according to the union, means that the systems are not directly comparable.
The union also addressed the issue of flows from the Pension Fund Administrators (AFP), indicating that Minister Bonilla has not taken into account all income, such as pension bonuses and pension insurance, which finance the payment of allowances.
Likewise, Asofondos emphasized that savings should not be measured only by what exists in the Savings Fund, but also by what remains in the individual accounts of the members. They argued that, overall, a reduced threshold results in greater public and private savings.
Regarding the returns obtained by the AFPs, Asofondos defended their efficiency, highlighting that these include interest on TES bonds. In addition, they pointed out that the Government assumes a real debt of 7% with a pensioner in the RPM, while with the capital market it is 4% real, which should be taken into account when evaluating the efficiency of the system.
Asofondos’ response highlights the complexity of the debate on the pension system and the importance of considering all aspects before making crucial decisions about its reform. With Infobae