The problems of the pension system in Colombia: a campaign discussion

Coverage, sustainability and equity are the main themes of analysis of the pension system that, for experts, requires reform whose proposals have fueled the presidential debate

While candidates are launching proposals for the fundamental reform required by the Colombian pension system, it is essential to understand what needs to be solved. A small part of the older population gets the pension, those with higher incomes take the subsidies and generate huge public spending, while a large number of elderly people live in poverty.

A figure that experts have defined is that barely a quarter of the population (25 per cent) over 60 years old has a pension in the country. That is, three people out of four do not have that benefit that allows them to maintain themselves in old age. This is, for many, the main problem, which is why there is a need to expand coverage.

In 2020, as quoted by the newspaper El Espectador, only 23% of adults over 60 had a pension, meaning that less than a quarter of the population received the allowance. Another fourth, as Mauricio Olivera (director of Econometrics Consultores) told that media outlet, received the subsidy from Colombia Mayor and the other two received nothing.

This last sector is worrying when the figures indicate that 26% of people over 60 live in poverty and the subsidy of Colombia Mayor is not above that range; according to an impact report, the newspaper cited, although it allows the elderly to eat and pay for some basic needs, it does not affect the condition of poverty of the beneficiaries.

This weekend was touched by a report from Noticias Caracol in which Maria Nubia Cardenas, a woman over 80 years old, who was a beneficiary of the subsidy program created in 2006, told how she distributed it to the credit account of the market store, bus tickets to go to the doctor, basic services and a brace of more than 4 million pesos. Although it allows him to sustain himself in precariousness, with the inflation of food prices he has had to sacrifice some to get money.

READ MORE: ABC of the presidential proposals on the pension issue

There, the inequality of the system is evident, when State subsidies go mainly to the richest population. According to the Regressive, Exclusionary and Inefficient report, what to do with the pension system? of the University of Los Andes, for a peso destined to Colombia Mayor, 9.5 are allocated to pensions for Colpensiones and 30 for a pensioner from Public Pension Funds (Fopep).

Within Colpensiones, subsidies are higher for people with higher incomes, increasing inequity in the system. Colombia ranks last in spending assistance to the most vulnerable older adults on the continent (less than 0.2 per cent of GDP). In fact, the pension system contributes to increasing inequality in Colombia,” the report states.

It should be recalled that the pension system under the Medium Premium Scheme, which provides a pension based on the average wages received after the completion of the contribution time and age; and the Solidarity Individual Savings Scheme, which distributes the savings in the allowances after meeting any of the requirements. The first is the public and the second is the private one.

According to Fedesarrollo, the richest 1% of the pensioned population receive allowances close to 12 million pesos, while those with the lowest income barely receive an average of 815,000 pesos per month. According to El Tiempo, 1 in 2 people from the upper classes have a pension and 1 in 8 in the lower classes.

The State must allocate 40 billion annually (figures for 2021) of the General Budget of the Nation to finance pensions and inequity is generated there. According to Anif, very high allowances that cannot be covered with money from the pension exchange, must be covered by public money. Thus, 74 per cent of these resources go to the richest 20 per cent of the medium premium regime and only 0.5 per cent of the subsidies go to the poorest 20 per cent.

In this regard, Ricardo Ávila, member of the board of directors of Colfondos, said in an analysis for El Tiempo that the current system is expensive and resolving coverage also requires solving inequity, because with the aging of the population indicated by DANE, it will be more expensive to sustain the system and more will be required contributions in the future and will make it unsustainable if it is not reformed.

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