Beware, with the pension reform many will retire with much less money: specialist lawyer explains why

Lawyer Misael Triana Cardona, founding partner of the firm Abogados Triana and specialist in social security at the Pontificia Universidad Javeriana, analyzes in this short video the pension reform that is currently being discussed in the Congress of the Republic.

Triana is also co-author of the book “Challenges of social security in Colombia after 30 years of Law 100 of 1993”, which will be launched on April 25 at the International Book Fair in Bogota.

The following is what the jurist had to say.

Good afternoon to Más Colombia, which always offers us these spaces to propose interesting topics for everyone.

Today we want to raise an issue that is surely of interest to all Colombians: the issue of the pension reform, which was presented to the Congress of the Republic by the national government.

In this sense, we must say that we currently have a social security law on pensions that is precisely 30 years old, because it was issued in 1993. It is Law 100 of 1993.

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There have been many experiences gathered in these 30 years and we currently have a system that has two regimes: an Average Premium Solidarity Regime, managed by Colpensiones, and an Individual Savings Regime managed by private pension funds.

Today, there is a minimum contribution ceiling, which is 1 minimum wage, and a maximum ceiling of 25 minimum wages. The member chooses where he/she wants to be, whether in one regime or the other.

With the pension reform that is being presented, members who contribute up to 3 legal monthly minimum wages in force are being told that they will necessarily, and obligatorily, have to be in the Medium Premium Regime administered by Colpensiones.

The rest will be in a system that we have called, or that we understand, is mixed. That is to say, people earning more than 3 minimum salaries will be in the Average Premium System up to 3 minimum salaries, and thereafter in the Individual Savings System. This is for the Pillar called the Contributive Pillar.

There are certain reservations and certain early warnings that must necessarily be made, and that is that people who contribute for more than 3 minimum salaries will not feel motivated to be in the pension system.

You may ask, how do you read that?

Well, let’s say you earn, for example, 10 million pesos. Let’s assume that the minimum wage was the same as last year’s, one million pesos, so that we are clear on the math.

Then, for the first 3 million pesos you contribute to Colpensiones. There they will give you a pension with a return of approximately 70%, that is, they will give you a return of $2,100,000. But for the other 7 million pesos, after contributing 25 years with that salary of 7 million pesos, they are going to give you $2,200,000 maximum.

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And that’s when people start to do the math: “Come on, if for $3,000,000 they gave me $2,100,000, for $7,000,000 why should they give me $2,200,000? That’s a total of $4,300,000, when my salary for the last 10 years was $10,000,000”. This means that you had a return of 43%, and that affects the proportionality that any pension system should have.

So, that is the major warning that we are generating today in the face of this pension reform proposal.

Now, a next issue: the government proposes a Solidarity Pillar for those people who are in extreme poverty, in poverty or in a state of vulnerability, according to some measurements that are made through some mechanisms to know if you are located in any of these three situations.

This is very commendable. That is to say, any policy or any comprehensive protection system for the old age of people who have no income and who are in that situation is valid. The question is where is the money going to come from; are we going to sacrifice the people who do contribute to the system in order to finance those who, for whatever reason, have not done so?

I believe that the treatment we should give to all members of the pension system should be different, just as their contribution to the system is different.

Those who contribute with a minimum salary will retire with a minimum salary: 100% of the salary they reported and contributed will be their pension. But those who report and contribute, and make an important contribution to the system -in the example we are giving of 10 million pesos-, will have a return of 40% or 43%, and this will discourage people who are currently contributing more than 3 minimum wages.

There are some issues related to the financing of the system in the pension reform that undoubtedly need to be discussed, because the only pension stock that we have today, the only savings, is held by the private pension funds for around 350 trillion pesos, and this needs to be taken care of. It is the only savings we have.

The government is entering into a state of relaxation and is leaving or does not want to continue allocating resources from the General Budget of the Nation for the payment of pensions.

So, gentlemen of Más Colombia, this is a supremely interesting subject that gives room for a wide discussion. For this reason, I would like to invite all readers to the book launching that will take place on April 25 at the International Book Fair in Bogota, at the stand of the Universidad del Rosario, pavilion 3, second floor of Corferias.

The book is called Challenges of social security in Colombia after 30 years of Law 100. There you will find a great debate on pension reform, health reform and all the experiences gathered in these 30 years of the comprehensive social security system.

Thank you very much.

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