The pillar-based pension reform proposed by the national government, in particular the minimum transfer of $500,000 per month for the elderly who do not have a pension, will have significant fiscal consequences for the country and Fedesarrollo, according to the analyzes of the study centers of Anif.
Mauricio Santa María, president of Anif, assured that the proposal for a minimum transfer of $500,000 goes in the right direction, but that it does not take into account the reality of the country, as it generates fiscal pressure and would cost $21 billion annually .
For his part, the director of Fedesarrollo, Luis Fernando Mejía, said that pension liabilities will increase by 126.6 percentage points with the implementation of the universal pillar that includes the aforementioned transfer and that fiscal imbalances will increase. term.
“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.
The experts who participated in the forum ‘Lupa a las Pensiones’, organized by Fedesarrollo, Anif and the Universidad de los Andes, agreed that the comprehensive system of old-age protection can guarantee the poor population a minimum transfer equal to the border of extreme poverty that will be $214 thousand by 2023.
Santa María indicated that the current pension system increases social inequality. “We spend a lot of money, for very low coverage and to cover some subsidies that target the higher-income population,” he said, explaining that in the public system, the 20% of the lowest-income population only 0.13% receive the subsidies, while the 20% with the highest income receive 76.8% of the subsidies.
He added that in Colombia, the majority of contributors are unable to retire and receive no balance. The requirements of the pension system are inconsistent with the realities of the labor market for the majority of the population, and those ultimately most affected are women and those on lower incomes.
He presented Anif’s proposals for a pension reform to achieve a just and sustainable system. Among other things, he pointed out that “savings should be encouraged and also those who are excluded from the pension system.”
Oscar Becerra Camargo, a professor at the Faculty of Economics at the Universidad de los Andes, argued that a pension reform should have four policy objectives: coverage, equity, sustainability and efficiency.
He highlighted some of the concerns raised by the current government proposal, such as where the funds will come from to fund the solidarity pillar and what impact this will have on capital markets.
Pension funds
Mejía assured that one of the main sources of financing of the national debt, such as the funds managed by the pension funds (AFP), would also be at risk.
“With the pension reform announcements, the trustees could lose up to 86% of the $24.8 billion in revenue from AFP contributions in 2021. This would imply a lower TES purchase of up to $5.5 trillion (15% of the 2017-2022 average),” the expert explained.
Currently, the AFPs have a share of more than 25% (equivalent to $112.7 billion) in government funding. Similarly, the purchase of TES bonds is the second most weighted item in the investment portfolio.
red lines
In turn, Santa María said that there are two red lines that cannot be crossed with this reform and that is that the savings that people have already contributed cannot be used.
In addition, a transitional regime must be established that respects acquired rights and recalled that Law 100 established a transitional period of 21 years.
Source: El heraldo
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
