Pension Reform: Children over 25 would no longer inherit their parents’ savings

The government of President Gustavo Petro has been promoting pension reform since the beginning of his term in office, a little over a year ago. It is a bill that has sparked discussions and controversy, as it would significantly change Colombia’s pension policy.

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Among the points that have raised the most controversy in recent days is the modification of the right that children over 25 years of age have today to inherit the pension savings of their parents when they contributed during their lifetime to private pension funds.

Well, if the pension reform is approved as it passed in the first debate, they would no longer be able to inherit their parents’ pension savings after their death.

Such inheritance is called “pension substitution”. This is explained by Daniel Wills, technical vice-president of the Colombian Association of Pension and Severance Funds Administrators (Asofondos).

Currently, in the Individual Savings with Solidarity Scheme (RAIS), which is the one managed by the private pension funds, “the resources are their own”. For this reason, and in the event of the death of a contributor, the savings pass by law to his or her heirs. In the medium premium scheme, which is the one managed by Colpensiones, this is currently not possible, but the monthly amount received by the pensioner is usually higher.

“In the private fund, when the balance remains, it passes as an inheritance to the heirs defined in the will. It is part of the estate of the person who died”, Wills points out.

However, in its attempt to unify the two pension systems (public and private), the pension reform would eliminate this benefit for children over 25, who would lose the possibility of inheriting pension savings.

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This has been one of the arguments pointed out by Asofondos, the association that gathers private funds, to request substantial changes to the pension reform proposal. In Asofondos’ official Twitter account, it is stated that, “with the pension reform, those who do not have a partner or children under 25 years of age or simply do not have children, will not be able to leave their savings to other family members”.

Regarding this, Wills explains that, “with the reform, the first three minimum wages go to a common fund. This is not individual property, and if one dies, this balance is no longer in the estate of the person who died”.

The pension reform would eliminate the benefit of inheriting the pension of private fund contributors.

According to the technical vice-president of Asofondos, Daniel Wills, currently, when a contributor to the private pension system dies, his pension savings go first to his spouse and then to his minor children.

If the contributor dies and there is no spouse, the minor children are the direct beneficiaries. When the children reach the age of majority and the deceased mother or father had no living spouse, they also inherit the balance of the individual savings.

And, in the case of parents who are economically dependent on the deceased contributor, and who can prove it, they can also receive the substitution of the pension.

In relation to this point, Daniel Wills explains that in many occasions the heirs receive money corresponding to the pension savings of the deceased contributor. This is due, according to Wills, to the fact that usually the account has a balance available at the death of the contributor, because the pension is for life and the balance is administered in such a way that it is never exhausted, Wills points out.

“If the parents are very long-lived, maybe there won’t be as much in the account, but typically there are a few million pesos left for their children. This does not exist in the public fund, which is Colpensiones. There is no balance, and then there is nothing left for the heirs either”, explains the vice-president of Asofondos, Daniel Wills.

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