In the next few days, the paper for the first debate on the pension reform is expected to be filed, and in the face of the discussion about the direction the system will take, private funds have taken an active voice. Miguel Largacha, president of Porvenir, spoke with Portafolio about it.
How do you see the bill settled in Congress?
We have spent many years, many governments asking for a change in the rules of the old age protection system. What we have today is insufficient and must be strengthened. We welcome that there is a reform, but the question is which reform do we need.
(Pension reform would affect pension insurers).
What is the positive of the project in your opinion?
That unifies the systems. It cannot be that you have a twin brother, one is affiliated to the pay-as-you-go system, the other to the individual savings system, both quote with the same salary and the same weeks, but obtained different benefits. The system must be simpler so that people understand the rules of the game and that the systems do not compete if they do not complement each other.
The second thing is that the subsidies to public pensions are very high. All the pensions that Colpensiones gives have a subsidy, which means that what was quoted is insufficient to finance a pension. And the highest subsidy is taken by the highest pensions and that is another advantage, that these subsidies are eliminated.
Today in Colombia there are 1.7 million Colombians in a state of need, who receive a subsidy of $80,000. That’s nothing, this reform expands that solidarity pillar, and will give nearly 2.5 million older adults $223,000 a month, that’s progress. And there are other significant issues such as disability and survival insurance, transfers, and the recognition of women.
(Ministry defends the pension reform and its contribution threshold).
What worries you about the project then?
Congress has challenges and challenges to enrich the reform. If one asks any Colombian what the legacy of Law 100, creator of the individual savings system, has been, the first thing they say is that the number of pensioners did not increase, and this reform does not increase pensioners either, it continues to have that difficulty . Coverage does not increase.
The proposal has three pillars: the solidarity one, those vulnerable people, the semi-contributory one, the one who contributed and did not achieve it, and the contributory one, the one who retires. But the frightful of Colombians, 78% will remain in the semi-contributory, only 3% will retire and the rest will be in the solidarity pillar. It’s challenging, and it’s not going to increase coverage at a very significant cost.
Various studies conclude that the public debt will double. To make a sustainable reform, there has been talk that the threshold of the contributory pillar is 1 minimum wage.
(Weight of the insurance sector in the economy went from 3%).
How do you see the savings?
It’s fundamental. Savings in Colombia have been declining, and the more than 18 million Colombians who contribute to pension funds are contributing to that saving.
In simple terms, when a person requests a loan, it means that someone had the capacity to save, and took a financial intermediary to lend them. To the extent that there are more savings, the interest rates on loans are lower, inflation is lower, and more employment is generated by companies because they invest.
What do you think of the ceiling of three salaries that was defined for the contributory pillar?
As all the pensions that go to Colpensiones have a subsidy, let’s give a subsidy to those who need it, the closer we get to a minimum wage, a subsidy will be given to those who really require it. If a high-income person, with the pillar system, is also going to contribute to Colpensiones, they will still receive a subsidy. By lowering that ceiling, we ensure that the subsidy remains focused.
And there is the freedom to choose, why can’t we create the same pillar system, but based on individual savings?
(Pension funds, the largest financiers of the Government?).
What is the balance of Porvenir in the first quarter?
Savings in a pension fund are long-term savings, and it is normal to have volatilities. We have more than 11 million affiliated Colombians, who have neither profit nor loss, but appreciation and devaluation. Last year we saw devaluations, but in this first quarter the mandatory pension fund appreciated $8.5 trillion, with rates of return in some funds reaching 60% effective per year.
How are the numbers of affiliates and pensioners?
Porvenir last year finished almost 800,000 affiliates. We have 138,000 pensioners and last year we pensioned an average of 74 people every day. We pay $1.3 trillion in pension allowances in 2022, and it is their own savings, managed by us.
We expect 72,000 new applications for old-age pensions this year.
LAURA LUCIA BECERRA ELEJALDE