Pension reform: text approved in the first debate would raise the pension liability to 218% – Sectors – Economy

With the installation of a new legislature of the Congress of the Republic, the pension reform discussionswhich on June 14 was approved in the Seventh Committee of the Senate.

At the initiative of the National Government, which has undergone some changes in the middle of the process, He needs one more debate in the Senate Plenary and another two in the House of Representatives so that it can become law.

(Read also: Fourteen warning signs after approval in the first debate of the pension reform)

The modifications that stand out the most are those that impact the transition regime, as well as the age required to be a beneficiary of the solidarity and semi-contributory pillars.

The main objective of these adjustments is to benefit women in the pension scenario and, although the National Association of Financial Institutions (Anif) recognizes that it is a laudable objective, it assures that the measures that have been proposed represent a higher cost for public finances and they do not solve the real underlying problems.

The text approved in the first debate establishes that women who have a minimum of 750 and men who have at least 900 weeks of contributions will continue to apply the rules of Law 100 of 1993.

In turn, people who meet these same requirements and are less than 10 years away from reaching pensionable age They will have two years to change regime.
In addition, another important adjustment in which men and women are differentiated is the minimum age at which they can access the solidarity and semi-contributory pillars.

Previously, those two pillars required that all beneficiaries be over the age of 65, along with other specific requirements. in the changes made it is sought that women can access these benefits from the age of 60.

Anif undertook the task of carrying out an analysis to determine the fiscal impact of these changes and How much does government spending cost? as a percentage of the gross domestic product (GDP) and concluded, first of all, that within the solidarity, semi-contributory and contributory pillars, marginal increases in the fiscal cost were observed.

These increases are mainly generated from the increase in the number of beneficiaries of the programs contemplated in the reform by reducing the age at which women can access them (60 years for women and 65 years for men) and the extension of the transition for the full application of the reform.

Now, it is in the transition and in the pension window where the most important increase in the fiscal cost is observed. Under the new transition, in which women with a minimum of 750 weeks and men with 900 weeks and less than 10 years of pension are now allowed to change regimes, the cost increases to 20.1 percent of GDP by 2100.

This is 3.3 times higher than the previous cost and places a heavy fiscal pressure on the Government. Specifically, the increase in the pension call window occurs because there are a greater number of people who can worsen the regime change. Those people are mostly those with low incomes.which is where most of the contributions in the system are concentrated.

In its calculations, the Anif economic studies center assumes a scenario in which rational contributors (that is, they do better by moving when calculating their allowance) actually move. The cost generated by this change in the reform project is 14 additional percentage points with respect to the initial scenario.

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

In this sense, and taking into account the changes mentioned above, the Net Present Value (NPV) of the pension liability at 2100 will now be 170.3 percent of GDPwhich means an increase of 22.2 percentage points more in relation to the original proposal of the pension reform.

Another aspect that Anif analyzed were the effects of the recent ruling of the Constitutional Court, which says that women can retire with a minimum of 1,000 weeks of contributions (today it is at least 1,300 weeks).

Although it is true that women face greater barriers when it comes to contributing to a formal job and it is more difficult for them to meet the requirements to retire, Anif points out that reducing the number of weeks of contribution will suffer savings made by women during their productive lives is less.

This consequence of the decision affects both women’s savings and the aggregate of public finances, by having to finance a higher subsidy.

As a result of the new spending pressures and taking into account a scenario in which the reform that is being processed today with the threshold of three minimum wages in its contributory pillar enters into force, an additional increase in liabilities of 47.5 percent of GDP in 2023 is generated, according to Anif calculations.

In other words, in addition to the previously mentioned liability, which is equivalent to 170.3 percent of GDP with the reform proposal, the decision of the Court would increase it to 217.8 percent of GDP.

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

At this point, Anif insists on the need to lower the threshold of the public component of the contributory pillar to a minimum wage. “In that case, the subsidy would be truly limited and focused on the people who really need it,” she adds.

However, it is not clear what will happen to those women who contribute more than 1,000 weeks and what replacement rate would apply to them. If the additional weeks were allowed, the liability would increase via higher subsidies, but if this modality is not allowed, there would be no incentives to make additional contributions, with which they would stop receiving income for Colpensiones. That is to say, on both sides the tax gap would open.

The biggest objection to the decision of the Court -sure Anif- is that the problems that women face in the pension system they are not solved by reducing the quoted weeks.

Although it is clear that there is a disadvantage in access to pensions by women compared to men, the center for economic studies states that the underlying origin of these differences lies in structural problems in the labor market.

Therefore, in order to guarantee a more equitable access to the pension system, the effort should be made based on the guarantee of equitable conditions within the labor market and not through this type of measures that favor one regime over another, also revealing a high fiscal cost.