Miguel Largachapresident of the pension and severance fund future said that more than one pension reform In Colombia, what is really needed is a reform of the old age protection system, because there are five million unprotected older adults and 1.7 million of them receive $86,000 a monthwhat is below any poverty line.
He assured that they are being pensioned proportionally more than Colpensiones and if everything remains the same, in 2050 funds there will be more pensioners in the funds than in the public entity.
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How did it go in 2022?
The first thing to note is that financial markets go through moments of volatility. In April 1994, $1 million pesos in a CDT today would represent $17 million and $60 million in a pension fund. 2022 was the most challenging for the financial markets as fixed income and variable income presented devaluations.
Last January, the valuation of Porvenir’s portfolio was 6.2% and the profitability of the industry was $14 billion and the balance reached $360 billion and we managed $200 billion from affiliates.
And financially, how did Porvenir do?
This is an industry that has a guaranteed return obligation unlike any other industry. The mandatory fund and some severance payments, which are for more than 14.2 million Colombians, must rent a figure determined by the Financial Superintendence and if it is not met, the shareholder must put up the missing money. Last year Porvenir obtained a return on equity of 7% and a profit of $154,000 million.
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The AFPs are turning 30 years old. Since when are you retiring?
In the case of Porvenir, the first old-age pensioner was in October 2002. Disabled two years after working, in 1996.
How many pensioners does Porvenir have?
In 2022, 135,000 occupied and last year 19,654 people retired with us. We receive 61,000 applications a year.
If 61,000 people request a pension and they gave it to 19,654, what happens to those who did not succeed?
In Colombia, people are contributing on average for only 12 years to retire and for those who did not achieve the minimum number of weeks, balances are returned, which are paid with financial returns. Thus, whoever in 2022 was not able to retire in a private fund received, on average, $37 million. In Colpensiones, in an identical case, they received an average of $7 million, since they are not paid financial returns there. The refund of the balance is adjusted for inflation.
To those who cannot retire in private funds and we return the money with the respective profitability, we tell them that an alternative is to constitute a Beps (Periodic Economic Benefits) that together with a Government subsidy of 20% on the value paid, can be issue a deferred income.
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How is the profitability of the funds?
The OECD (Organization for Economic Cooperation and Development) says that Colombian private funds are the most profitable in the last 20 years of all the countries in the organization. Private funds in Colombia have delivered an average real return of 7.41% since their inception.
Do private funds retire more than Colpensiones?
The requirement with a private fund to obtain a pension is 1,150 weeks, that is, 23 years. With Colpensiones there are 1,300, that is, 26 years. Now, of every 100 affiliates in Colpensiones, 90 are not going to be able to retire and in private funds the figure is 73.
However, in terms of results, pensioners are growing at a rate of 20% per year in private funds, while in Colpensiones they grow only 4%, so if the situation continues like this, at this time, in 2050 The private funds will have a greater number of pensioners than Colpensiones.
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And what do you think of the pension reform? Can affiliates be sure that they won’t get their savings?
What Colombia needs is a reform to protect old age, not pensions, since 50% of Colombians do not have a work contract, so they do not contribute. On the other hand, in health all Colombians have the right, even if we do not contribute. To have a pension you need an employment contract. Of the five million unprotected older adults, 1.7 million received a monthly aid of $86,000, below any poverty line.
We want Colombians to be able to maintain the benefit of retiring at 23 years of age in private funds, greater coverage of the solidarity pillar and that the subsidies go to those who really need it and we favor greater savings, which is essential because, for example, of the 67% of the pension resources managed by Porvenir are income. We do not know the bill but what we are saying is that the savings belong to those who do it, to the affiliates.
The bills do not respect the Fiscal Rule and the sustainability of public finances and the Minister of Finance has said that the fundamental factor of the Colombian public debt is the pension funds.
If a first solidarity pillar is established, it must be saved, because if it is not done, how will it be paid for in the future. The fiscal impact that a third pillar of four minimum wages would represent would be enormous for public finances.
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What is the fear of private funds?
A reform that the country needs must be carried out, which strengthens old age protection, which provides subsidies to those who need it, improves the Beps, saves contributions and unifies the two systems. Years ago we asked for a reform that protects old age.
President Petro said as a candidate that the pension savings would not be touched because they belong to the workers. That has been sustained by public officials. A labor reform must be made to generate a regular contribution. The reforms that one would like are the age or the contribution. They must eliminate the differences between retiring with a fund and Colpensiones.