Home » What is at stake with the pension reform, according to ANIF – news

What is at stake with the pension reform, according to ANIF – news

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What is at stake with the pension reform, according to ANIF – news

Pension reforms are rare and affect the well-being of several generations.

The debate on pension reform once again takes center stage on the public agenda.

As we have pointed out on multiple occasions, ANIF states, the current General Pension System has several deficiencies:

It has low coverage: only 1 in 4 people of pension age receive an allowance. Its design is highly inequitable, since the 20% of the highest-income population concentrates 80% of the subsidies. The system in its medium premium component faces a significant challenge in terms of sustainability due to the demographic change associated with the drop in the birth rate and the increase in life expectancy. It is worth remembering that Colombia had 11 active workers for every older adult at the beginning of the 1960s. Currently, this proportion has decreased to only 5. It is projected that by the year 2050, this figure will be reduced to only 2 workers per older adult, and in the year 2100 it is estimated that there will be only one.

Pension reforms are rare and affect the well-being of several generations. “We celebrate the Government’s initiative to rethink the design of the pension system. We invite Congress to have an informed and responsible discussion, given that a pension reform would have an immediate effect on the country’s economy and on the following generations of Colombians.”

The pension reform proposal in its current state will not solve several of the system’s problems, since it does not modify the pension age or the special regimes.

In terms of coverage, it is important to remember that the majority of Colombian workers do not meet the pension requirements as a result of labor informality. In that sense, the labor reform proposal, which Congress will discuss separately, goes against improving pension coverage, since, instead of attacking informality, it could increase it, by increasing the costs of formal work.

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The current Government pension project increases coverage with the proposal to consolidate a Solidarity Pillar, which is not exactly pension in nature, intended for older adults living in poverty and vulnerability. “This proposal is welcome and we only point out that it does not need a pension reform to carry it out. For this transfer program to be a reality, it is necessary for the Government to appropriate the resources and program said expenditure in the Medium-Term Fiscal Framework.”

In terms of inequality, the Government’s proposal advances by reducing the maximum amount of subsidies. However, by having a threshold of three minimum wages for the Contributory Pillar, the subsidies will be generalized for the entire population up to the threshold. Ultimately, higher-income people will continue to receive a subsidy. If we consider, adds ANIF, the aspect of sustainability, the Medium Premium Contributory Pillar proposed by the Government, which includes the contributions of all members up to three minimum wages, would end up generating a significant increase in the country’s pension liability, which could compromising the sustainability of public finances, and therefore of the system. According to recent calculations, the pension liability would increase to 194% of GDP due to the reform proposal, some 84 points of GDP above the current liability. Of this increase, 40 points of GDP are explained by the Average Premium Contributory Pillar. Reducing the threshold of said pillar to 1.5 minimum wages, as suggested by the alternative pension reform proposal of the Partido de la U, would help reduce pension liabilities, according to calculations, by 23 points of GDP (approximately 360 billion). Other entities estimate similar increases in pension liabilities if the current proposal materializes (Table 1).

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At this point it is worth mentioning the importance of protecting system savings. ANIF invites Congress to think about a design for the new Savings Fund that avoids the temptation to use pension resources for another purpose and that has a clear Corporate Governance. The alternative proposal of the U Party contemplates that the Savings Fund be administered by the Bank of the Republic. There are other alternatives, but it seems to us that in any case the proposal that the Savings Fund be administered by Colpensiones should be rejected, to avoid any type of conflict of interest, as Colpensiones is a key actor in the architecture of the system.

It also urges parliamentarians to think about less lax conditions for the transition regime and thus reduce fiscal costs. It also suggests maintaining the 50-week bonus scheme for women with children until reaching a minimum of 1,150 weeks, in order to mitigate discrimination in the workplace associated with motherhood, but without reducing the contribution weeks to 1,000. as the reform proposes today. This is because the fiscal cost associated with this measure would be significant considering that women have a longer life expectancy, almost 7 years compared to men.

Finally, the Center for Economic Studies notes that it is important for Congress to discuss the technical and technological capabilities of Colpensiones to adopt the functions it would have in the new system. Said entity is not ready to assume the management of the contributions of all workers under the Medium Premium Contributory Pillar. Therefore, it suggests that the reform begin no earlier than 2026 (2026 or 2027), so that Colpensiones has enough time to improve its internal processes. This point would be without prejudice to starting the Solidarity Pillar early as the Government seeks budget resources and said spending program is incorporated into the Medium Term Fiscal Framework.

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In summary, the Government’s pension reform initiative is welcome, which should be widely discussed by Congress, says ANIF, and specifically suggests:

1) Reduce the threshold of the Contributory Pillar (hopefully to a minimum wage, but in any case less than or equal to 1.5)

2) Create a strong Corporate Governance system for the Savings Fund, which in no case should be managed by Colpensiones.

3) Design a less lax transition regime, of at least 1000 weeks and with age requirements

4) Postpone the entry into force of the new system to 2026 or 2027, so that Colpensiones has time to prepare. 5) Maintain pension bonuses for women with children, up to a minimum of 1,150, but do not reduce the weeks of contributions for women to 1,000 as proposed in the current Government proposal.

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