Through a technical analysis by several researchers, the Fedesarrollo think tank prepared a document that was made available to the Government to improve and adapt the pension and labor reforms to what Colombians truly require today.
The director of the think tank, Luis Fernando Mejía, said that the initiative to modify the pension system in the country is going in the right direction, but that adjustments must be made, especially in the solidarity pillar, which should be lowered from three minimum wages to one and a half wages, to avoid underfunding of the AFPs.
Likewise, he considers that the labor reform does go against the generation of employment, because its effect would be to increase informality.
THE NEW CENTURY: How is this technical reasoning in which the labor reform, right, can derive the changes that it can have, also the pension system?
LUIS FERNANDO MEJÍA: The fundamental elements that we try to rectify with this report is that the pension reform points in the right direction, that it generates a supportive pillar, that expands care for those older adults who have not received care and is focused on poor people and vulnerable. But, it also eliminates that complicated system that works in parallel in the individual savings regime and the average premium regime that has sometimes generated wrong decisions by people who do not have enough information. However, on the other hand, with the labor reform we believe that it is going in the opposite direction to what it should aim for; and it is that unfortunately it will have consequences in the labor market, especially in those who today do not have a job and almost 60% of the population who are informally employed. So, these two reforms must be made compatible and important elements must be included centrally.
Impact
THE NEW CENTURY: Based on the labor reform and then the pension reform, does this affect the health reform?
LUIS FERNANDO MEJIA: One of the elements that can be mentioned in several of the government programs of the candidates, including us, is a reform of contributions to social security in health and why? An independent worker has to contribute 12.5% of his income to be formal, that is, he has to pay $125,000 only for the health system and, in addition, he has to pay a pension and occupational risks. Undoubtedly, what he ends up deciding is to stay in the informal sector because he knows that he can access the health system through the subsidized regime. So, one of the alternatives that we have put on the table again is to change this form of the current design in health contributions and propose a progressive structure, where people who have income equal to or less than a minimum salary of $1,160,000 of today, because you do not have to contribute to the health system and from that amount implement a very progressive rate that starts at 0% and would reach levels of 9% for people who earn 25 minimum wages.
So, in some way it is an element that could undoubtedly encourage labor formality, because it would be telling those people who have an income close to a minimum wage that they would not have to contribute to health.
The top
THE NEW CENTURY: Do you think that suddenly the government is going to lower the ceiling of three minimum wages that it put in reference to the question of savings and that the income of the pension funds decreases?
LUIS FERNANDO MEJIA: The mandatory contributory pillar is excessively high and this creates a very significant affectation not only for private savings flows, which are now managed by the administrators, but also in some of the savings requirements considered very high. According to the government, with this base of three minimum wages, about $20 billion a year should be saved, about 1.3% of GDP in order to prevent pensions from being underfunded in the future. For this reason, we have proposed the alternative of reducing this threshold in half, to 1.5 minimum wages, to mitigate these two effects that would occur with the current reform in terms of the flow to private savings on the one hand and, on the other hand, to cushion the fiscal impact of this pillar, as they undoubtedly also affect the public finances of the National Government.
THE NEW CENTURY: If the government decides to accept going down to one and a half wages, how much savings does this mean for the pension system?
LUIS FERNANDO MEJIA: If you accept that proposal that Fedesarrollo has made, savings would increase to $11 billion on the private savings side, and on the other hand, what the reform proposes today, in terms of public savings are in line with those requirements and thus avoiding a problem from the point of view of financing pensions.
The settings
THE NEW CENTURY: It has been said that with the various proposals that have been raised, a reform will not be required, but rather to adjust and correct what is wrong. What does he think about that?
LUIS FERNANDO MEJIA: I think the reform as it is proposed is going in the right direction, a reasonable structure is necessary, but they have to make adjustments throughout the discussion in the Congress of the Republic. And in that, well, there are the elements that we have talked about in what has to do with the savings fund and, it is also a topic that is not discussed much. But it is very important to also adjust the parameters that are essential for the sustainability of this component and in this system that the National Government is proposing.
THE NEW CENTURY: Isn’t it time to touch on those special regimes that a sector of the population enjoys today?
LUIS FERNANDO MEJIA: Today, there are only two special regimes, those of the military forces including, of course, the National Police and that of teachers. The rest are already in transition and will disappear. It is an important discussion because when we talk about the case that the national government makes in terms of pensions that exceed 3.5 points, a very important part of that expense is destined for special regimes. But at Fedesarrollo we don’t have a specific proposal, we haven’t studied it in detail.
Accepting the suggestions
THE NEW CENTURY: Do you think that the government is going to accept those suggestions that you are making in order to pretend that the reforms continue their course in Congress?
LUIS FERNANDO MEJIA: Well, we are seeing a well-structured reform, which has some elements that go in the direction that is necessary to solve the problems of the current pension system and, I think there is a willingness to listen to these comments both from the Ministry of Finance and, Also of course the Ministry of Labor. In this sense, we are confident that some elements can at least be discussed, but perhaps the biggest concern has to do with the labor reform because in this case the analyzes that we have published from Fedesarrollo indicate that unlike the pension reform, The labor reform goes in the opposite direction to what should be a fundamental objective, which is the generation of formal employment. But what our accounts indicate is exactly the opposite, which unfortunately will generate incentives for hiring formal jobs and induce greater informality.