The OECD assured that Colombia needs pension reform

The Organization for Economic Cooperation and Development, OECD, recently revealed in Bogotá a report where it talks about poverty and inequality in Colombia, as well as the effects of the covid-19 pandemic in the country.

Jens Arnold, an OECD economist specializing in Latin America and knowledgeable about the Colombian case, said in an interview with Blu Radio that the country's fiscal response was “timely” in the face of the current situation, but assured that there are effects on Colombians.

The report, according to the economist interviewed by the station, reveals that Colombia must implement a reform of the pension system. According to Arnold, the current system does not allow many Colombians to enter and its financing prevents the creation of formal jobs.

“Today, less than 20% of the vulnerable population in Colombia is covered by social transfers, discounting temporary benefits, in Latin America they are on average 40%. It is important to move towards universal coverage with transfers against poverty both in the elderly and earlier and with benefits that allow the elimination of poverty in Colombia in the medium term, that is the main message of our report.”

The OECD defends the different ideas recently put forward and hopes that presidential candidates will include reform of the pension system in their government plans.

“Colombia cannot continue with pension coverage for only 25% of the population, Colombia cannot continue with these high rates of poverty and inequality, now is the time to debate what can be done to reduce this poverty and inequality more permanently and this should be at the center of the debate,” said the economist on the radio station.

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 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.

Currently, the system is divided into two regimes: the state and the individual savings regime, 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 they 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.

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