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The move comes as the country debates pension reform and the fiscal impact it will have once the measure is approved and comes into force with the current terms, in a report released on Friday, June 7 by the Securities Self-Regulatory Authority (AMV), which warns: This will severely dampen investor interest in the local market.
According to the private organization responsible for monitoring, regulating and professionalizing the Colombian securities market, the impact of the changes to the pension model proposed by the national government will be felt in various aspects, including lack of liquidity, independence of Republic Bank and the country’s image in the investment community.
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The first observations of this team of experts focus on the changes brought about by adjustments such as savings and mandatory contribution thresholds, which will lead to a significant part of the pension system’s resources going to the public fund, created with the reform.
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In this sense, AMV President Michel JannaIt was recalled that pensions would reduce personal savings and reduce investment capacity in key sectors such as infrastructure, industry and public investment, which could hamper long-term economic growth.
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“If not adjusted, the reform project could significantly reduce the demand for financial instruments such as TES, stocks and participation in local private capital funds, thereby affecting the capital market, financing of various economic entities, and thus affecting the economic growth of the country.Jana added.
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In this context, the report emphasizes that adequate savings rates can reduce reliance on external financing and increase resilience to financial crises. He also focuses on 2.3 The minimum wage is mandatory for public funds and is said to make a huge difference.
Michel Janna, President of the Securities Market Self-Regulatory Authority (AMV).
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“The proposal would effectively transform Colombia’s pension model into a pure pay-as-you-go system, as 86.2% of the population earns below this threshold, so the vast majority of workers would only contribute to Colpensiones and not generate personal savings.”, explained.
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On the other hand, AMV added that under the current reform proposal, contributions to the supplementary personal savings component of the contributory pillar would be reduced by 67% on an annual basis, with a negative impact on the national savings and investment rates, stressing that this is not conducive to Measures necessitated by an ageing population.
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In summary, the self-regulatory bodies believe that restrictions on personal savings will significantly reduce the resources managed by AFPs and affect the diversification of pension fund portfolios and the demand for financial assets.
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In a domino effect, investment in TES, corporate bonds, stocks and other financial instruments will decrease, negatively affecting Colombian capital markets. “The lack of a clear investment and diversification policy for FAPC (Contributory Pillar Savings Fund) increases uncertainty and risks associated with the reforms,” the report said.
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“There are two problems: the first is that, with the reform, the country will save less than before, and the second is that the system will start saving in a different way: mainly public funds, and the experience of the state finance department in the management of these programs has historically been problematic.”, added the AMV president.
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The report adds that reform advocates believe The reduction in flows to individual savings schemes and its negative impact on the demand for financial assets (such as TES or shares) will be offset by greater investments in these assets by the public fund Fapc that will be created with the reform, but counters that its operation is unclear.
Discuss pension reform.
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“The reality is that we do not know what the FARC’s investment and diversification policy will be, as the bill does not specify it. Currently, the public fund that is most similar to the FAPC is the National Pension Fund of Territorial Entities (Fonpet), which is managed by the Ministry of Finance and Public Credit.”” Michelle Jana explained.
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The stock market self-regulator also spoke about the changes made by Congress in the pension reform process and said there is one point that worries him and that is related to the role that the Bank of the Republic will play in the management of these resources.
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“AMV supports the recommendations made by several analysts in a senseor the Board of Directors of the Bank of the Republic (JDBR) shall nominate independent members of the Steering Committee, and based on this nomination, the National Government shall determine the members of the Executive Body.”, they pointed out.
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In addition, they suggested some changes that would allow the commission to develop a staggered composition change plan, similar to that of the Bank of the Republic board, and allow for re-elections taking into account the fund’s investment horizon. Likewise, they said the national government could directly appoint only one member of the commission at most.
Finally, in order to ensure the sustainability of the reform, the agency insisted on the need to reduce the proposed contribution threshold to 1 or at most 1.5 times the current statutory monthly minimum wage, making it clear that this adjustment strengthens the sustainability of the reform system and prevents medium and In the long run, increase public spending to pay for pension benefits.
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