Fedesarrollo proposes adjustments to the government’s pension reform

Fedesarrollo proposes adjustments to the government’s pension reform

Fedesarrollo presented proposals to adjust the pension reform proposed by the national government, which is based on four pillars, which would reduce tax costs.

Fedesarrollo director Luis Fernando Mejía claimed that as the government’s pension reform is proposed, it will lead to an increase in pension liabilities of 126.6 percentage points with the implementation of the universal pillar and will reduce fiscal imbalances in the medium term enlarge.

“The proposal that the government has announced so far would entail increased expenditure in the short term. Without an additional source of income, the sustainability of public finances would be at risk,” explains Mejía.

He indicated that while 64% of the working age population (PET) in Colombia is affiliated with some kind of pension plan, only 25% contribute. For their part, only 25% of adults over the age of 60 are retired under the Average Contributions (RPM) scheme managed by Colpensiones or the Individual Savings with Solidarity (RAIS) scheme managed by private pension funds.

In the framework of the forum ‘Lupa a las Pensiones’, organized by Fedesarrollo, Anif and the Universidad de los Andes, Mejía assured that one of the main sources of public debt financing, such as the resources they manage for pension funds. funds (AFP).

“With the pension reform announcements, the trustees could lose up to 86% of the $24.8 billion in contribution income in the AFPs in 2021. This would imply a lower purchase of ATES to $5.5 trillion (15% of the 2017-2022 average),” the expert explains.

Currently, the AFPs have a share of more than 25% (equivalent to $112.7 billion) in government funding. Similarly, the purchase of TES bonds represents the second most weighted item in the investment portfolio.

For this reason, Fedesarrollo, who had already announced his pension reform proposal, proposes that alternatives could be adopted in the universal pillar, either in the amount provided or in the age of the beneficiaries, which would have an impact on pension liabilities .

The subsidy proposal for the elderly without protection in old age could be adjusted from the government’s proposed $500,000 per month to more than $214,000 per month, representing the extreme poverty line.

In addition, Fedesarrollo proposes to lower the threshold separating the RPM from the RAIS in the contributing pillar, from 4 current legal minimum monthly wages to 1.5 minimum wage.

He points out that a change in the calculation of the basic income (ILL), so that the average of the last 10 years of working life is not used, but of the entire working life, could mean a decrease in pension obligations. .

Similarly, it is proposed to create incentives for late retirement, which can be done with higher replacement rates as the retirement age rises.

Government pillars proposal

The proposal is based on a first pillar (basic pension) that provides a basic pension of $500,000 to all older adults who do not meet the minimum to retire.

It has a second pillar based on BEPS, which will include those contributors who fail to make retirement weeks.

The third pillar is the contributory mandatory savings in which up to 4 SMLV would be quoted in Colpensiones, and the deductible above 4 SMLV in an AFP.

The fourth pillar is save voluntarily addition that will be made in addition to the quote.

Source: El heraldo