Five risks that are still latent with the Petro pension reform. How to eliminate them? – Sectors – Economy

The pension reform that the government of President Gustavo Petro filed last March will not change its full approval in the Congress of the Republic during the first legislature of the year, so its discussion will continue as of next July 20.

In the first phase of the project process, 94 articles were approved in the Seventh Commission of the Senate and the Colombian Association of Pension Fund Administrators (Asofondos) highlights as positive aspects that the solidarity pillar be formalized and expanded.

(Read also: Calculation of allowances: this would be after the approval of the pension reform)

In addition to integrating the two existing regimes into a single system, but further adjustments are still needed; subsidies to high pensions are limited (although it does not eliminate them) and there is a gender approach, which will allow progress in correcting the discrimination of the system towards women.

However, Asofondos He still considers that, despite the changes that have been made to the original proposals, several problems are not being resolved, which is why new modifications are required in the new debates that are carried out.

“We call attention so that in the following stages of discussion in Congress they are analyzed broadly and objectively, since this project is transcendental for everyone. We consider that there is a risk to the rights that workers have today, can be affected in old age“, assured Santiago Montenegro, president of Asofondos.

Rights and benefits in jeopardy

1. Ownership of savings: dividing the contributory pillar in two and forcing the contributions corresponding to the first three minimum wages to go to Colpensiones, means that the portion of the contribution corresponding to those salaries ceases to be individual property. 90 percent of the workers, immediately, will be left without this property of their savings flow.

2. Freedom of choice: Article 18 requires that these first three minimum salaries can only be administered by Colpensiones, and only those who are above those three salaries, which is the minority of the population, will be able to choose.

“Freedom of choice is highly valued by Colombians, since currently we are all allowed to choose which entity manages our savings and offers the best returns,” says the union leader.

3. Heritability: workers will no longer be able to inherit their savings, that is, they will not be able to choose the type of pension in which the balance of their account remains as an inheritance to their children of legal age or other relatives up to the fifth degree of consanguinity.

(Also read: Pension reform: the points that continue to worry experts and AFP)

4. Pension before retirement age: the possibility that today workers have to retire before reaching pension age is eliminated if they have sufficient capital. This option, which today is a right, is increasingly appreciated by the new generations.

5. Blow to savings: The project hits the generation of pension savings and, as a consequence, the country’s macroeconomic savings. Due to the effect of article 24, “we estimate that only a fifth of the contributions will be saved and the rest will go to the common fund to pay the pensions of those who are already pensioners in Colpensiones,” says Montenegro.

The proposed common fund, being a pay-as-you-go system, is not sustainable over time due to the drastic demographic transition the country is undergoing. While countries in the world strengthen savings, Colombia moves in the opposite direction.

Accumulated savings, today around 372 billion pesos, equivalent to 25 percent of GDP, will drop to 10 percent by 2050. In addition, as a consequence of lower savings and remaining subsidies, fatigue the pension liability with serious fiscal consequences.

(Also read: Pension reform in Colombia: what was approved in the first debate?)

The proposals of Asofondos

Although the president of Asofondos acknowledges that Colombia needs a pension reform, it cannot be forgotten “that The consequences of a reform of this type will last for decadesreason for us to make a reform for our good children, for our grandchildren and for all those who will come after”.

For this reason, the union is proposing to the Government and Congress five considerations:

1. That saving be a fundamental principle: Due to the demographic transition and the aging of the population, Asofondos insists that the contributory pillar should be above all savings, managed by private and public entities.

2. Adjust the Semicontributive pillar: Bearing in mind that three out of four Colombians do not retire, and most of them will not receive the solidarity subsidy, these workers will receive a Semi-contributive pillar.

But, as the project was, a worker who contributed on a minimum wage would only receive about 90,000 pesos per month, while with an AFP he would receive 202,000 pesos, so this point deserves a review.

3. Eliminate subsidies for high-income workers: With the reform, all pensions that are settled on more than three minimum wages receive a subsidy of close to 400 million pesos.

These subsidies should not be given to high incomes and therefore the lower the threshold, the smaller the subsidy. With a savings-based system, the high-income subsidy disappears.

(Read also: The changes proposed by José Antonio Ocampo to the pension reform)

In this sense, it is important to take into account the repercussions that this decision has, since the higher the threshold, the greater the fiscal cost and, therefore, the greater the future debt. Several experts, such as the Autonomous Committee of the Fiscal Rule and Fedesarrollo agree on this point.

4. The freedom to choose must prevail: Asofondos believes that Colombians should be able to choose who manages their savings, and that each affiliate should always have an account with this savings in their name. This, regardless of how the pension is settled when you reach legal age.

In addition, the union ensures that Pay-as-you-go or medium premium systems are unsustainablebecause there are fewer and fewer active workers for each elderly person, which inevitably leads to reducing pension benefits for the new generations.

It also calls attention to the public savings fund, which does not have a protective shield in its articles. The history of public funds is that they can be easily dissaved, putting the financing of all pensions at risk. That has been the history of Fonpet, FNA and any public fund.

Finally, there is concern about the operational aspect, since “moving towards the new system imposes major technological challenges, especially for Colpensiones. We believe that this may take longer than expected,” Montenegro said.