Colombia’s pension reform will commence on July 1, 2025, introducing a four-pillar system comprising a solidarity program, semi-contributory program, contributory program, and voluntary program. This restructuring aims to increase old-age income support and streamline contributions across various employee demographics. Employers must prepare for enhanced contribution rates and engage with consultants to navigate these upcoming changes.
Colombia is set to restructure its pension system, implementing a comprehensive four-pillar structure commencing on July 1, 2025. This initiative comprises a solidarity program, a semi-contributory program, a contributory program, and a voluntary program, aimed at broadening old-age income support for a greater segment of the Colombian population.
The pension reform, sanctioned by Congress in June 2024, will be facilitated through a series of regulations, the first of which was decreed on October 3, 2024. The new system targets men with fewer than 900 contribution weeks and women with fewer than 750 weeks as of July 1, 2025. Those with at least these contributions will remain under the existing pension framework. Furthermore, individuals nearing retirement age (62 for men and 57 for women) will be obligated to transition to the new system by July 16, 2026.
The contributory program under the current Law 100 of 1993 mandates employees to enroll in either a defined benefit pension plan managed by Colpensiones or an individual savings plan with private administrators. This restructuring will introduce a public component alongside a private component in the new contributory program. Contributions will be divided into two sections: one for employees earning below 2.3 times the minimum wage and another for those exceeding this threshold.
Apart from the contributory program, the semi-contributory program is designed for individuals lacking sufficient contributions for an old-age pension. Those with between 300 and 1,000 contribution weeks by the retirement age will receive a semi-contributory pension, supplemented by government support. In contrast, contributors with fewer than 300 weeks will receive a refund of their contributions.
Additionally, the solidarity program targets individuals who do not qualify for other pensions, requiring them to be at least 65 years old for men and 60 for women, among other criteria. Eligible individuals will receive monthly solidarity pensions aligned with the extreme poverty line. The voluntary program, which remains largely unchanged, offers optional retirement plans managed by private providers for additional contributions.
The proposed changes to the contributory program represent a substantial shift for employees currently enrolled in private pension plans, who will begin contributing to the public fund as of July 1, 2025. Although the basic contribution rates for employers and employees remain fixed, new additional rates applicable to higher earners will see increases starting that date, necessitating adjustments to payroll systems.
Employers are encouraged to engage with Lockton Consultants to discuss these forthcoming changes and their potential impacts on employee retirement benefits and financial planning.
In summary, Colombia’s upcoming pension reform aims to enhance retirement income support through a four-pillar system, effective July 1, 2025. This new framework introduces several programs targeting various demographic segments and modifies existing contribution structures. Employers must prepare for the changes in employee contributions and should consult with experts for guidance on implementation. This comprehensive reform is a critical milestone in ensuring broader financial security for the Colombian populace during retirement.
Original Source: global.lockton.com
