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Colombia's government to send pension reform proposal to Congress

Tan KW
Publish date: Wed, 22 Mar 2023, 11:06 PM
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BOGOTA - Colombia's government is set to send a pension reform bill to Congress on Wednesday that would widen coverage and strengthen the state pensions administrator, although analysts fear it could pose a risk to capital markets and public finances.

The bill is one of a raft of social reforms pushed by the government of leftist President Gustavo Petro and follows hot on the heels of health and labor reform proposals.

Petro's coalition has a majority in Congress, though the health reform has caused friction with some legislative allies and led to the exit of one member of Petro's Cabinet.

The pensions bill would enshrine a range of contribution regimes depending on income and contains a proposal to guarantee a basic monthly income of 223,000 Colombian pesos ($46) for people who have not managed to secure a pension.

Under the bill, workers earning up to three times the minimum wage - about $724 per month - would have to pay their contributions into state pension fund Colpensiones.

People earning more than that could pay contributions on amounts exceeding the three-times minimum wage to a private fund, while those earning more than four times the minimum wage would be required to contribute to a so-called solidarity fund.

Just one in four Colombians currently reaches the minimum number of working weeks in formal employment required to receive a pension, Labor Minister Gloria Ines Ramirez said on Tuesday, saying the bill would "extend this right to many more."

Analysts say the reform will affect government financing because a significant flow of money would migrate from private funds - the second-largest holders of Colombia's internal public debt - to Colpensiones.

As of the end of February, private pension funds had 116.2 trillion pesos ($24.2 billion) invested in TES bonds, equivalent to 25% of the Andean country's total internal debt.

After taxes, TES bonds are the second most important source of financing for public spending.

"An aggressive pension reform bill, which could divert considerable flows from (private funds), constitutes a significant fiscal risk for the government's local financing plan," bank Goldman Sachs said in a note, causing TES bonds to fall.

A savings fund holding an initial 20% of contributions received by Colpensiones can be used if needed to shore up the pension system when payouts to certain contributors rise above 1% of gross domestic product, the president's office said in a statement on Wednesday.

"The creation of this system will avoid impacts in the capital market and on acquisitions of TES," it said.

The reform would keep the retirement age at 57 for women and 62 for men.

 


  - Reuters

 

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