Colombia urges a pension reform

"Catastrophe” seems to be the word of choice when experts and analysts talk about the Colombian pension system. With an immense fiscal gap –US$13 billion, 4% of the Colombian GDP–, the current pension system is putting at risk the future of millions of people, who will find themselves without any financial security in the next 10 years. The seriousness of the situation is such that executives from the main pension companies in Colombia agree that the country desperately needs a pension reform.

Not only that. Even if the country extends the age of retirement, increases the contributions per person and decreases the benefits, there’s a need for a structural change. The same executives argue that, aside from the pension reform, Colombia needs a labor reform capable of decreasing the current informality rate. It’s difficult to put a finger on the main cause of today’s crisis, since there is more than one reason. As analysts have noted, one of them is informality. As Miguel Largacha –president of the private pension fund Porvenir– says, informality is limiting the system: “50% of workers earn less than the minimum wage and, at the same time, we’re seeing a high level of informality: only one out of three workers contribute.”

Another one is inequality. Santiago Montenegro –president of Asofondos– remarked that subsidies are being poorly distributed: “We’re not distributing the money. Instead, it’s concentrating in the pension system and that harms the Gini index. It is absurd that the regime is so inequitable.” It appears that the Colombian pension system is inherently corrupt, with the richest quintiles receiving more subsidies than the people that truly need them.

A poor economy, paired with a high level of unemployment, has a fairly reasonable consequence: people lack the resources to contribute to the health and pension systems, and, therefore, retired people can’t have their respective pensions. Even worse, retired people with low income aren’t getting any benefits from government expenditures.

Thankfully, the Colombian government is taking note on the advice of executives. Last Friday, April 21st, president Juan Manuel Santos proposed the creation of a committee that would evaluate the possibility of “fast tracking” a pension reform. His words lacked certainty about the timeline and the urgency, but, in spite of that, they seemed convincing: “It’s something that we need and, even though I don’t think we will be able to release it this term, we’ll create a mission with a fixed time to achieve a minimal consensus so the Congress can approve this reform quickly.”

The question still lingers in the day-to-day of millions of people: will we ever get our pensions? Everyday, it seems less likely.

LatinAmerican Post | Juan Sebastián Torres

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