Background and Relevance
In Colombia, the National Congress has approved a pension reform that establishes a comprehensive Social Security System for the Elderly. This new structure aims to broaden coverage for elderly individuals living in poverty or those who haven’t been able to secure a pension. The reform, set to commence on July 1st, must be verified by the Constitutional Court to ensure that procedural issues have been adequately addressed.
Four Pillars of the New Pension System
The new pension system comprises four distinct pillars, each designed to cater to diverse career paths and contribution levels among the population:
Solidarity Pillar
This component will benefit men over 65 and women over 60 who are in a state of poverty or vulnerability (as per Sisbén level C3) and includes individuals with disabilities. They will receive a monthly stipend equivalent to $223,800, which is the projected extreme poverty line for 2024.
Semi-Contributory Pillar
This pillar applies to individuals who contributed between 300 and 999 weeks but did not qualify for a pension. They will receive a lifetime annuity based on their savings, plus 3% annual effective return and a subsidy of 20% for men and 30% for women on the remaining balance.
Individuals who contributed less than 300 weeks will also have access to a refund of contributions.
Contributory Pillar
Contributions up to 2.3 minimum wages will go to Colpensiones, while any excess will be directed to Private Pension Fund Administrators (AFP). These two benefits will merge to form a single old-age pension, which must be recognized within four months of the application.
This pillar also includes voluntary savings that individuals can make for their retirement.
Pension Age and Contribution Requirements
The pension reform does not alter the age or contribution requirements for a retirement pension. Therefore, affiliates must continue to meet 1,300 weeks of contributions and be at least 62 for men and 57 for women.
Individuals with 900 contributions (men) or 750 weeks (women) by July 1st, 2025, can remain under the previous regime (Law 100 of 1993).
A two-year transition period is provided for those nearing retirement to choose a new regime after receiving dual counseling.
“Acquired rights will be respected, meaning currently pensioned individuals will continue under the same conditions,” the document clarifies.
Additional Benefits and Adjustments
The reform introduces several new features, including a reduction in the minimum number of weeks required for pension recognition. For women with children, this reduction will be one week per child, capped at three children.
Moreover, the reform includes benefits for women, parents with disabled children, and rural workers. It introduces a family pension, early retirement for those with over 1,000 weeks of contributions, and special rules for mothers or fathers with permanently disabled children. Rural and independent workers can now contribute in days or weeks, even up to 12 months in advance.
