Will Gustavo Petro Be Able To Emulate The European Pension Systems In Colombia?

On May 29, a new election day will be held in Colombia to choose the person who will take the Presidency of this country for the next four years. Leading the polls is the candidate of the Pacto Histórico, Gustavo Petro, who, despite having an intention to vote of 37%, according to a study commissioned by important media such as RCN radio, FM and RCN news, El Heraldo, El Universal, Vanguardia, La República and La Patria still has a long way to go if he wants to be president. 

One of his most criticized proposals is a possible pension reform. The leader of the Historical Pact seeks to reduce the importance of private pension funds in the country's pension system, so that Colpensiones (public fund) is the entity responsible for organizing and issuing payments for retirees in the country.

As explained by Petro, the first thing that would be done is to move 20 billion pesos (more than 530 million dollars) from private funds to Colpensiones, so that in this way the state pension fund is in charge of its own budget and transactions. In this way, "the Government will be able to reduce its transfer from the budget to Colpensiones by 18 billion pesos annually," he explained.

Thus, according to the progressive politician, "not only will the future pension of current contributors be paid, guaranteeing their right to the pension, but also current pensions without removing acquired rights."

In addition, it ensures that with the 18 billion that the national government would save, the State could support the more than three million older adults who today do not have a pension, distributing this figure in half-salary pension bonuses minimum (500 thousand pesos or 133 dollars) among this population.

Thinking of Europe

It should be remembered that many of the points exposed by Petro are, according to him, based on a reform that emulates what has been done in European countries such as the Netherlands, where there is a three-pillar system that the candidate of the Historical Pact wants to establish in Colombia.

In the case of this country of the Old Continent, the pension system has three major activities in which public and private funds do not compete with each other, but rather complement each other.

Thus, in a first pillar, the State guarantees for all its citizens over the age of 66 and a half, whether or not they have paid a pension, a salary equal to 70% of the Minimum Interprofessional Salary that the country manages each year. To cover this expense, the Government is in charge of administering the citizens' taxes, as well as the contributions made by the workers, which makes this strategy 100% state-owned and with zero intervention of the private sector.

The second pillar is the well-known contribution to the pension system that most countries in the world have, in which, after an employment contract, the employer and the employee agree to allocate a part each to individual savings that will serve as a pension for the worker at the time of retirement. This represents at least 70% of a retiree's final pension.

Finally, the third pillar is the private pension funds that can be accessed by anyone, and that are used to save an additional supplementary pension. In other words, if a person wants to have more money at the time of retirement, they can make use of these funds and thus have a much larger mattress with which they will guarantee that their last days are better. 

You can also read:   The structural problem of pensions in LatinAmerica

Another of the success stories within Europe is that of Iceland, a country that was listed as the best on the planet in terms of the pension system, according to the latest report by the Mercer CFA Institute Global Pension Index, considered one of the best in relation to this item.

According to this, the North Atlantic island has a very good basic level of study income, a good pension plan; a retirement age that is in accordance with the level of financing of its government (67 years), and state regulation that does protect its pensioners.

Iceland also has a system of compulsory contribution by employees and employers (15.5% of salary, with 11.5% paid by companies and 4% by workers), as well as a private fund system in which anyone can contribute.

Before concluding, it is important to point out that the pension age in Colombia is 63 years, so it has a difference of 3 and a half years less in relation to the Netherlands and four with Iceland. Of course, this situation (more people retired in less time) has been a criticism of Petro's pension proposals, who is still looking for a way to convince his opponents that a system like the Colombian one can adapt to what Europeans have done for many years.