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The recently approved Law No. 2381 on pension reform presents some curious circumstances.
We consider solidarity and semi-contributory pillars. The first will provide low-income Colombians with a monthly annuity equivalent to the extreme poverty line (about 225,000 pesos) without having to make weeks of contributions to the pension system. The semi-contributory pillar will also provide a lifetime annuity, but its value will depend on the number of weeks of contributions.
The strange thing here is that if a person has paid less or more than 15 years of the minimum wage in their lifetime, the pension they receive will be lower than that received by someone who may have never made contributions and is part of the solidarity pillar. Therefore, it is not a good idea for low-income workers with precarious employment to regularize and pay pensions in the new system that comes into effect next year. It is better not to do so and receive a living income from the solidarity pillar. In the absence of contributions, workers can also benefit from another subsidy, that provided by the Colombian Mayor, which starts at the age of 59 (for men) or 54 (for women). In fact, Law 2381 does not order the closure of the Colombian Mayor. Therefore, we will have the two assistance programs, the Colombian Mayor and the Solidarity Pillar, coexisting, although targeting the same target groups.
The above is also relevant to the calculation of the pension liability arising from the pension reform. This is estimated on the assumption that the resources of the Colombian mayors will be integrated with those of the solidarity pillar; this is not currently the case.
In general, we have little certainty about this pension liability. Jorge Armando Rodríguez, a professor at the National University, believes that the calculations proposed do not properly take into account the liability that arises when the Minimum Pension Guarantee Fund is exhausted, and the State will have to be responsible for paying the pensions by integrating the aforementioned funds into the individual savings system.
Determining the pension liability in 2070 or 2100 requires making assumptions about changes in population, formal and informal employment, labor force participation rates, etc. All variables not explained by the model. One issue that is particularly worth considering is demographic differences. So far, Dane and the UN have projected a decline in the country’s population starting in 2052 and calculated the pension liability based on this outcome.
However, in a recent article published in the same newspaper, researchers Jesús Fernández and Iván Luzardo from the University of Pennsylvania show that Colombia’s population, which is expected to reach a critical point in 2023, has already declined. This 30-year difference in demographic indicators has a huge impact on the calculation of pension liabilities, leading to an increase in them.
In any case, another curiosity is that we do not know how much the recently launched pension reform will cost the state budget.
Stefano Farne
Labor Market Observatory, Externado University, Colombia.
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