Colombian pensions??

[David Barkley]

Seems strange a coutry where people do everything on a cash basis, yet I always hear about older Colombians getting pensions from companies or the gov't.

Like Ive said many times , trying to get a Colombia to even lend you a dos mil pesos is difficult, how can a Colombian expect to depend on getting a pension from a Colombian company or gov't?

[Morgus]

A lot of Colombians get pensions after working many years. I know a lady in her 40s that got a pension of about 500k a month after hurting her back. She worked for a bank. Another guy I know has to wait until he is 70 before he gets his pension.

[David Barkley]

Morgus said:

A lot of Colombians get pensions after working many years. I know a lady in her 40s that got a pension of about 500k a month after hurting her back. She worked for a bank. Another guy I know has to wait until he is 70 before he gets his pension.

The question was: pensions in Colombia appear to go against the Colombian cash basis culture of not depending or trusting anyone else. So why so many pensions? and does Colombia also have social security type pensions like here in the US?

[Morgus]

Just do a Google search.

"In 1994 Colombia started replacing its state-run and pay-as-you-go (PAYG) pension system by a privately-run and fully-funded scheme. This study analyzes prospective fiscal and macroeconomic implications of this reform. It compares the features of Colombia's old and new pension system, puts them into broader international context, and looks at the reform transition. Numerical simulations for the government's reform transition reveal implicit PAYG debt levels and corresponding reform transition deficits that are high relative to other countries, considering that Colombia's old pension system was characterized by low coverage, low system maturity, and a young population. Simulation results show that output could increase by 10 percent due to higher future saving caused by financing the pension deficit by a fiscal contraction - but this would occur only in the very long term. Sooner and possibly larger gains could be reaped from higher employment and production in formal sectors, and the development of capital markets spurred by the reform. In addition, Colombia's new pension system - which includes a redistributive pillar targeted at the poor -- is potentially more equitable than the old scheme. To reap these efficiency and equity benefits, however, the Colombian government would have to adopt complementary reforms. They include giving the private fully-funded pension pillar a commanding role, supporting the development of capital markets, and bolstering formal-sector employment by the reduction of deadweight tax burden of non-pension programs that are currently financed by payroll taxes on labor."

[Morgus]

"During the 1990s, pension reforms developed at a rapid pace in Latin America, including
Argentina, Bolivia, Colombia, Mexico, and Peru, among others, following the Chilean
pioneering reform of the early 1980s. The 1993-pension reform in Colombia was in some
regards unique in the sense that it established competition between the existing pay-as-you-go
system (PAYG), which dates from the early 1960s, and the new Fully Funded System (FFS) that
very much resemble the privately run Chilean system, based on the “Administradoras de Fondos
de Pensiones” (AFPs), see Ayala (1995)."

[Morgus]

Colombia's government is preparing a bill that would limit pensions of upper income earners in the private and public sectors, thereby saving the government 9.1bn pesos (US$3mn) a year and reducing the breach between public and private sector pensions.





Local daily El Pais reported that article eight of the bill would eliminate special pension regimes starting December 31, 2007, and limit civil servants' pensions to a monthly ceiling equivalent to 25 minimum salaries.


In addition the legislation would freeze salaries and pensions of public employees earning more than 25 minimum wages during 2005 and 2006. Only members of the police and armed forces are exempt from this provision.


The reform would not affect the average worker since 70% of workers earn less than two minimum wages, deputy treasurer Juan Ricardo Ortega was quoted as saying. Those hired before the new rules come into place would see their original pension rights respected.


A new pension law that came into force last month is expected to save the government US$50bn over 50 years. Key measures of the law were a higher minimum retirement age starting in 2014 and a greater number of pension contributions.