Colombia: Candidate's pension reform opens debate

BOGOTÁ (AP) — The leftist candidate Gustavo Petro has raised concerns in the Colombian private sector by proposing a pension reform that expands coverage and modifies the distribution of resources by shifting much to a public fund and taking the weight off private funds.

The presidential campaign in Colombia began this week after Sunday's election day that defined presidential candidates from three political blocs: Federico Gutierrez on the right, Gustavo Petro on the left and Sergio Fajardo from the center. Petro won the most votes in the primary and, if he won the presidency, he would turn the country currently ruled by the conservative Ivan Duque a turn.

Petro suggests giving a “pension bonus” of $130 — half a minimum wage — to older adults who were unable to retire. About two million people receive a pension in Colombia, according to official data, despite the fact that some seven million are old enough to retire.

The system is currently divided into two regimes: the state and the individual savings system, which is managed by private funds. Workers can choose voluntarily which one to contribute to.

In the public, contributions go to a common fund and then they are distributed. A large part of the pension is subsidized by the State and is usually higher as long as it meets certain requirements: having contributed for 1,300 weeks and exceeding the required age, 57 years for women and 62 for men. In the private fund, people have an individual savings account and by contributing 1,150 weeks they can retire but do not receive subsidy from the State.

Petro says that in Colombia the right to have a decent old age has become a “business”, so he proposed that part of the savings that are in private funds should be transferred to the public fund.

“With that money you immediately pay the current pensions that the State is paying today, so you free the State 18 trillion pesos annually in the budget ($4.7 billion) and by releasing it you spend it on the old ones who do not have pensions today,” the candidate said in a recent presidential debate.

The Colombian Association of Administrators of Pension and Unemployment Funds spoke out against the proposal in a statement in which it considered that “changing the distribution of resources of members is, in practice, expropriating pension savings”.

Petro, who in his youth was a member of the M-19 guerrilla and has been active in several left-wing parties, indicated that his proposal consists of a universal public system for those who earn up to four minimum wages. From then on, pensions would depend on income and workers could choose whether to contribute to a private fund on a voluntary basis.

Two analysts consulted by The Associated Press agreed that Petro's proposal is good in the short term, but would put the system at risk in the future.

“Today that speech is valid because we are paying pensions for only 25% of people. If we think that everyone pays contributions and receives the pension, then it must be paid 100%,” Stefano Farné, a former consultant to the International Labour Organization and professor at the Externado University, told AP. “In the long term, pension obligations are generated and in the absence of pension reform, the State will have to pay a lot more through the national budget,” he added.

Andrea López Rodríguez, an economist at the Universidad de los Andes and an expert in pensions, explained that Colombia requires reform that addresses the structural problems of the system, which would not mean eliminating private funds but “competition between regimes.”

“The public system as it works today is quite regressive, that is, it is the State that subsidizes the highest pensions and extending it without making structural reforms would only expand the problems that exist today. It is necessary to restructure the system so that subsidies reach the people who need it most,” added López Rodríguez.

Other candidates have criticized the proposal.

Fajardo assured that he also proposes a $130 bonus to older adults without a pension but with tax resources and not with the “savings of Colombians in private funds.”

Meanwhile, Gutiérrez questioned it: “Are you going to nationalize the savings of Colombians?”

A possible reform such as that suggested by Petro needs to be approved by Congress, where it would not have the majorities insured. While its Historical Pact movement achieved the largest left bench in the country's history, it would need to forge alliances with traditional parties.

The presidential elections will be held on May 29 and if none of the candidates exceeds 50% of the votes, a new round will be called.