Colombia will revamp its pension system by introducing a four-pillar framework effective from July 1, 2025, to assure better financial support for older citizens. Key changes include a mixture of contributory and solidarity programs aimed at expanding coverage to those traditionally underserved. Employers are urged to adapt to the impending modifications in contribution rates and regulations.
Colombia is poised to implement a significant restructuring of its pension system, transitioning to a four-pillar approach that includes a solidarity program, a semi-contributory program, a contributory program, and a voluntary program starting 1 July 2025. The reform aims to enhance old-age income support for a greater number of Colombians.
The pension reform bill received Congressional approval in June 2024, with the first regulation issued on 3 October 2024. This new system will primarily affect men with fewer than 900 weeks and women with fewer than 750 weeks of contributions, while those with greater contributions will remain under the existing system. Transition rules also apply to individuals nearing retirement age by June 2025.
The restructured contributory program introduces both public and private components for contributions. Employees will now pay into a public pension fund for monthly earnings up to 2.3 times the statutory monthly wage, while those earning above this threshold will contribute additionally to a private individual savings account. Mandatory contributions apply if employees earn over 2.3 times the monthly wage.
In the semi-contributory program, individuals who lack sufficient contributions for an old-age pension will still receive assistance if they meet specific requirements. A maximum semi-contributory pension will amount to 80% of the legal monthly wage, supplemented by government subsidies. Conversely, those with fewer contributions than required will obtain refunds from their pension accounts.
The solidarity program is designed for individuals who do not qualify for other pensions, ensuring a monthly payout that adheres to the extreme poverty benchmark. Eligibility criteria include age, residency, and verification of poverty status. A voluntary program offers individuals the option to enhance their retirement savings through private plans, although no new regulatory structure is introduced for these plans.
As of 1 July 2025, significant changes await employers. Employees in private plans will be required to contribute to the public pension fund, while higher-income earners will also start contributing to private plans. Contribution rates remain stable; however, additional rates for those with earnings exceeding four times the statutory monthly wage will see increases. Employers should prepare their payroll systems for these adjustments.
The pension reform in Colombia marks a transformative shift in the country’s approach to retirement income across various income strata. With distinct programs catering to diverse needs, including contributory and solidarity initiatives, the reform aims to enhance financial security for future retirees. Employers are advised to adjust to the new contribution requirements and ensure compliance with the revised regulations before implementation in 2025.
Original Source: global.lockton.com
