The doubts after the approval of the pension reform of the Petro Government | Colombia News

The doubts after the approval of the pension reform of the Petro Government | Colombia News
The doubts after the approval of the pension reform of the Petro Government | Colombia News

Debate on the pension reform in the plenary session of the House of Representatives.

Photo: José Vargas

President Gustavo Petro’s pension reform ended its process in Congress amid doubts and questions. Given the lack of time that put the initiative at risk, the Government bench decided to propose that the text that had come out of the Senate plenary session (second debate) be accepted.

With enough votes (86 in favor and 32 against) the House of Representatives said yes to the pension, but it was discussed by the Senate. From the third debate in the Seventh Committee of the Chamber Valuable changes came out, some promoted by the Government, including the adjustment to private fund commissions, clarifications in the savings fund and the elimination of an article that did not fit. Those changes were lost with Friday’s decision.

Pension reform: approved in a stellar vote

“It was this or nothing,” said Martha Alfonso, speaker coordinator. The argument of the Government bench is that approving this text was the “lesser evil” in order to save a project with many virtues. Other congressmen harshly questioned the decision, pointing out that the Chamber is not “notary” of the Senate and that the project, although there was little time left, had to be discussed in its fourth debate.

The opposition has already announced legal actions against what they consider a violation of the democratic process. José Jaime Uscategui, representative of the Democratic Center, stated that he will denounce the Chamber’s decision before the Constitutional Court, the Council of State and even international bodies.

Representative Andrés Forero assured that it is not true that the congressmen have physically received the text that the Senate approved. “Yesterday was so crude that they didn’t even comply with that formality.”

Opposition will demand the approval of the pension reform before the Constitutional Court

From several fronts they have warned that the Constitutional Court could overthrow the pension due to procedural defects.

President Gustavo Petro stated that “those who say that the pension reform was not debated are the same ones who allowed it to be shelved for 13 months on the desk of the president of the Senate” and defended that the plenary session of the Chamber made a “legitimate decision.”

In addition to the doubts about the constitutionality of the procedure, questions remain on the table regarding the text that came out of the Senate.

Settings that were lost

In practice, what was debated and approved by the Seventh Commission of the Chamber was annulled.

  • In this list of lost changes there are clarifications, such as that the solidarity pillar, which would provide $232,000 to 2.5 million poor elderly people, would be administered by Social Prosperity or that the pension reform does not affect special and excepted regimes.
  • Changes in the formula for calculating disability pensions that had the potential to benefit many people in the country and the benefit for women with children with disabilities were also annulled.

Also read: The changes that the pension had during its passage through the Seventh Commission of the Chamber

  • Commissions for AFPs: Another change that the same Minister of Finance, Ricardo Bonilla, had defended has to do with commissions for private funds. The Seventh Commission lowered the commissions for the AFP because the Government itself recognized that those approved in the Senate were disproportionate.

As the Senate bill revived, the “double commission” also revived, in Bonilla’s words, one for managed balances (0.7%) and another for performance. In practice, private funds will earn more than they do in the current system and with fewer responsibilities. Minhacienda calculations indicate that they would go from a commission of $1.4 billion (the total for 2023) to around $2.4 billion.

  • Saving Fund: The Seventh Commission had clarified the functions of the Bank of the Republic in the administration of the savings fund due to the requests that the Issuer itself had made.

Among other things, the Bank was not convinced by the function of electing the members of the fund, hence in the third debate it was decided that the election would be made by the president and in the presentation for the fourth debate (after the controversy) it was clarified that It would be from a shortlist made by Banrep.

In the long run, the reform approved by Congress did not respond to the concerns expressed by the Bank of the Republic.

Read: The doubts of the Bank of the Republic about its role in the pension savings fund

  • weeks for women: The Chamber had changed an article that allowed women with three children to retire with 850 weeks (by accumulating the loss of weeks that will be completed in 2036 with the benefit per child born), considering the fiscal impact. As Óscar Becerra, a pension expert and professor at the University of the Andes, said at the time, there may be cases of women who, with 17 years of contributions, can retire at age 57 and receive allowances, on average, for 30 years.
  • Article on differential approach: In the third debate, the article that the Senate approved at the last minute on differential rules for indigenous peoples, black, Afro-Colombian, Raizal, palanqueras and peasant communities was eliminated, considering the lower life expectancy of this population. According to experts, this measure would also have a significant fiscal impact that cannot be measured because it is not known what the parameters will be.

Also: The doubts generated by the Petro Government’s pension reform

The other concerns

  • Fiscal sustainability: There were already doubts about the sustainability of the project, but now they are greater, taking into account that the fiscal guarantee presented by the Ministry of Finance did not contemplate several of the considerations that were ultimately left in the reform, such as the possibility for women to retire. with 850 weeks.

The same Treasury portfolio had said that an adequate balance should be sought between fiscal sustainability and benefit benefits for women; Mintrabajo also made statements in that regard.

  • The validity: Until the last moment, the congressmen warned that Colpensiones is not prepared to receive the massive arrival of members in just one year, since the reform will be applied from July 2025. Jaime Dussán, president of the entity, maintained that they are prepared.

Another doubt is whether there is enough time for the more than 40 regulations that the Government has to make.

Read: Chamber approved the pension reform: the text that came out of the Senate was accepted

What does the pension reform say?

The reform ends the competition between Colpensiones and the Pension Fund Administrators (AFP) with the creation of a four-pillar system:

  • Solidarity pillar: contemplates a basic income that will correspond at least to the extreme poverty line (about $232,000) for elderly people in poverty who cannot obtain a pension (at 65 years of age for men and at 60 years of age for women). .

Also read: When does the pension come into effect and other questions about this reform

  • Semi-contributory pillar: it will benefit people (in the same age ranges as the solidarity person) who contributed between 300 and less than 1,000 weeks. In the current system, those who do not meet the week requirements are returned what they contributed (in the case of Colpensiones, without interest); Now that money will become a life annuity that will have a 20% subsidy for men and 30% for women.
  • Contributory pillar: all members of the system will contribute to Colpensiones up to 2.3 minimum wages and from then on, in one of the private funds.

This means that all members will contribute to Colpensiones, but those who earn more than $2,990,000 (2.3 minimum wages in 2024) will contribute the excess of that amount to one of the Pension Fund Administrators (AFP). According to the Ministry of Labor, of the $52 billion that the pension system moves each year, 34% would go to private funds and 66% to Colpensiones.

  • The fourth pillar is voluntary savings.

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