After the tax reform that will be completed in 2022 and the health reform that was recently filed in the Congress of the Republic, the The National Government is structuring what it will do to the pension system.
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Until now, several members of the Executive and the president Gustavo Petro himself have given some details of what this bill would bring. Considering this information, César Gaviria, former president of Colombia and current director of the Liberal Party, presents a «diagnosis» of the current system.
He states that this analysis can constitute a window to establish proposals that motivate «a reasonable discussion of the great problem of pensions» in the country.
Increasing coverage, improving the targeting of resources and ensuring the financial sustainability of the system, committing to be the axes of the reform that the Government intends to present.
“This is an issue that cannot be understood with confusing arguments and proposals that, if implemented could bring serious consequences to citizens. And in many cases, stripping them, not simply of rights, but also of assets fruit of their savings,» he said.
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Gaviria also says that, in Colombia, if the system proposed by the new government is adopted, which is the one used by Argentina and Uruguay, the payment of pensions could not be suspended, as has happened in those countries by exhausting the capital that the State took by right of the savings and contributions of citizens belonging to the pension system.
In addition, it highlights that these two countries made decisions like the ones currently being proposed, and have already reached the point of insolvency where pension payments cannot be made to people who have deposited their savings for years
Almost 30 years after the approval of Law 100 of 1993, the former president questions that Colombia continues with low coverage and a highly inequitable system, mainly due to the pure pay-as-you-go system (Prima Media Regime), the low number of contributors and the increase in life expectancy.
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In most cases, -he says- the amount of the pension is much higher than the contributions made during the employment stage because pensions are highly subsidized, both in terms of the private and public systems.
Only 0.1 percent of the poorest 10 percent people of pension age in Colombia have a pension “We have to ask ourselves if we are going to keep the high subsidized pensions in the two mechanisms. And to what extent should we do it, ”she adds.
He also comments that the dependence of the pension system on the labor market excludes many people from social protection. Perhaps one of the most decisive aspects is that more than half of the employed population does not receive the minimum wage and, therefore, cannot be affiliated.
Likewise, due to the characteristics of the labor market, high informality and high unemployment, there are population groups that cannot save the necessary capital required by the Individual Savings with Solidarity Regime (Rais), or cannot meet the necessary requirements of the RPM to retire.
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According to Gaviria, this occurs, especially, with women who, for the most part, are people with a low educational level, who have a younger retirement age and who have a longer life expectancy than men.
Neither do low-income people who have a minimum income benefit, since they were excluded from the system because their affiliation was rejected.
“Seeking solutions to these problems can also bring negative tax consequences of great importance, and they can lead us to unsustainable levels of indebtedness in regards to the General Budget of the Nation and in the future,» he warns.
The director of the Liberal Party cites a study by Anif that states that, despite the significant amount of resources that it costs to sustain the pension system, coverage has not increased in the last decade.
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By 2022, the coverage of pensioners out of the total population of retirement age remained at the same levels as at the end of the last decade, just over 20 percent. In other words, only one in five Colombians of retirement age obtain a pension.
According to the former president, it is false that private pension funds charge – as the Government has stated – a 30 percent commission for managing the savings of Colombians listed on them.
Instead of this, the contributions in the two schemes charge three percentage points of the 16 that must be contributed to the system for the pension of each citizen, as a charge for the administration of resources.
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There is also an insurance that in the end continues to pay for those affiliates who die before reaching retirement age or that of those who remain in a situation of disability, that is to say that in the end less than 3 percent is charged for the right to pension payment.
The alerts of the reform
Although César Gaviria assures that he understands the challenges that the Colombian pension system has today, he also affirms that “It would be a serious mistake to implement a regulation of any level that allows you to deprive the money to the taxpayers and take them by right, arguing that the contributions would become from the State to give them a character when they are paid into a fund”.
Taking into account the ideas expressed up to now by the Government, the current pensions would supposedly be paid and 28 billion pesos a year would be released in the Budget that would be spent on those who do not have a pension. “This is highly debatable from a constitutional point of view and also violates laws and jurisprudential rulings,” he affirms.
Furthermore, it explains that The Government intends to take the resources of the Pension Fund Administrators (AFP) that today belong to about 18 million Colombians and that add up to about 368 billion pesos to finance current public spending, and pay a pension subsidy to Colpensiones affiliates who are older adults living in poverty.
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If there are resources left over, they would be to give a payment to the older adults excluded from the system. And it is proposed to take, according to Gaviria, resources from the special mechanisms, members of the Military Forces, the National Police and teachers.
“This idea has various and severe problems. One of them is the entry into force of Legislative Act 01 of 2005, for which the savings made by members of pension funds are considered an acquired right with constitutional protection”, he indicates.
Saving is not public
On the other hand, it points out that the proposal that has been announced has «a profound ignorance of the law and judicial rulings», since these resources, which correspond to the pension contributions of the people, «They do not belong to the pension funds, nor to the banks, much less to the Government, nor are they part of the General Budget of the Nation”.
These resources are the exclusive property of the workers, as stated in Laws 100 of 1993 and 797 of 2003. While Legislative Act 01 of 2005 strengthens that the pension is an acquired and fundamental right that cannot be ignored , in addition to generating the State the obligation to pay under any circumstance.
“Taking them by right constitutes an unlawful act, since the affiliates’ accounts are their property. From the analysis of the aforementioned laws it can be concluded that in Rais pension contributions are the exclusive property of the member”, he reiterates.
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For this reason, the director of the Liberal Party assures that President Petro’s assertion that pension savings found in a private fund are public money does not correspond to reality. Rather, «they go against the norms that constitute our rule of law.»
“In other words, the proposal consists of spending the private savings of the people to get into debt in the future with much larger amountsbecause if they had not spent, they generated significant returns,” he adds.
In this way, an immense future debt would be found, added to the already existing pension debt as a result of the implicit subsidies with which pensions are paid.
There is no financing
Another warning issued by the former president is that using the money from Rais affiliates “would aggravate the problems of coverage and location of the subsidies that the system has. Apparently, the Government hopes to solve the RPM deficit by taking the resources of the AFPs and the Rais in what has to do with resources supplements provided by them for the individual regime”.
«And if it is decided to proceed along this path, what would happen after the nationalized resources are exhausted, according to the point of view of the Government?», he questions.
For these reasons, it also states that the Government’s statements that with resources from the current system an allowance of 500,000 pesos can be established for the three million older adults is «very laudable, but they lack a legal source of resources and those that are being considered are owned by the affiliates”.
For this reason, Gaviria points out that the problem is not with the proposal but with the way of financing it and with the magnitude of the resources required. «There is no doubt that the reform of the system demands significant fiscal resources that have not yet been quantified,» he asserted.
On the other hand, according to Anif calculations, based on the Great Integrated Household Survey (Geih) of 2020, 74 percent of these subsidies, which are from the RPM, benefit the richest 20 percent of the population, while only 0.5 percent of the subsidies go to the poorest 20 percent of the population.
«In other words, if these proposals become public policies, they would worsen the country’s already weak public finances, which in the case of President Petro must address many fronts that are considered priorities,» he says.
It also shows that the Government must be sure that, if it follows this path, there will be a host of demands from savers, and from many other sources, because the law and a legislative act «will assure them that these resources will always be theirs.» and could not be taken or confiscated by anyone.”
Before strengthening the system, César Gaviria believes that the first thing that must be corrected are the fundamental flaws so as not to continue increasing existing problems. “There is a risk of discouraging affiliation to the Rais and thus an incentive to move to the RPM would be generated, causing fewer people to contribute to finance the universal minimum allowance. Thus, the risk of the system becoming underfunded quickly grows”.
The Minimum Pension Guarantee Fund will be used for what is missing, but the legislative act does not leave room to adduce such as the fiscal rule or another argument of the same tenor.
Another point that he considers to keep in mind is that the system was designed when the population pyramid allowed the creation of a system of these characteristics, at a time when the base of young contributors was much broader than the number of older adults.
But the pyramid has changed over the years, making the contribution base insufficient to cover the number of people who retired or will retire in the future.
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