On July 20, 2023, the Congress of the Republic started a new legislative session, in which Act No. 293 of 2023 is expected to be deliberated and discussed now that it entered its legislative phase. This act aims to regulate Colombia’s Comprehensive Social Protection System covering pensions for retirement, disability, and death, all arising from a common origin.
In light of the forthcoming scenario, we find it both pertinent and relevant to provide an overview of the necessary steps that must be fulfilled by this bill in order to become a Law of the Republic. Additionally, we will present the relevant aspects raised by the Pension Reform concerning the transition regime, along with its application and scope.
The legislative process that an Ordinary Draft Bill must go through to be considered a Law of the Republic
An ordinary draft act must go through a legislative process consisting of four (4) debates in a period of a maximum of two (2) legislative sessions, as follows:
Thus, in order for the Pension Reform Bill to become a Law of the Republic, it will be necessary to complete the remaining three debates in Congress and subsequently obtain presidential approval.
Modifications and Key Aspects of the Pension Reform
One of the significant changes introduced in the Pension Reform, compared to the initial version of the Act, is the modification of the transition regime. This regime serves as a safeguard for acquired rights, interests, and benefits. Its primary objective is to ensure that individuals currently affiliated with the general pension system can retain the same conditions for accessing a retirement pension as under their current regime, despite any future legal changes.
The initial text of the Act stated that upon approval of its provisions related to the transition regime, and upon its entry into force, the conditions established in Law 100 of 1993 and its subsequent amendments would continue to apply to individuals who had contributed to the pension system by a minimum of one thousand (1,000) weeks by January 1, 2025.
After the first debate in Congress, it was determined that in order to be eligible for this Regime, women must have a minimum of seven hundred fifty (750) weeks of contributions, and men must have a minimum of nine hundred (900) weeks of contributions by January 1, 2025. Affiliates who fulfill these criteria will be subject to the provisions of Law 100 of 1993 and its subsequent amendments, rather than the new Reform.
This reduction in the required weeks of contributions will enable a significant number of affiliates to access the benefits of the transition regime, a regulatory adjustment that could be beneficial for affiliates who are close to meeting the required weeks for retirement. However, we believe that the fiscal impact of these new conditions has not been accurately measured.
On the other hand, it is important to mention the study conducted by the Fiscal Rule Committee (Comité de la Regla Fiscal – CARF) in May 2023. The study concluded that, as a consequence of the Reform, there could be a decrease in the number of individuals that are affiliated with the public retirement system (Régimen de Prima Media), which could result in a substantial reduction in contribution collections. This reduction would directly contradict one of the main objectives of the Pension Reform, as it would decrease the resources available to cover pension benefits.
In any case, we will closely monitor the remaining three debates in Congress, where we expect that the scenarios and dilemmas raised by CARF will be addressed and clarified.
Unclear aspects worthy of in-depth examination in Congressional Debates
Notwithstanding the debates held on the Pension Reform, we have observed that the text has not undergone significant changes, and some of the initial questions it rises to remain unresolved, particularly with regard to the following aspects:
- In the event that the affiliate passes away and there are no beneficiaries set to inherit the pension, what would happen with figures such as indemnización sustitutiva (substitute compensation) and devolución de aportes (refund of pension contributions)?
- Will the balances in the complementary component account be transferred to their heirs as a refund of contributions (devolución de aportes), or will this figure cease to exist?
- Can the contributions made and saved in the Complementary Individual Savings Component (Componente Complementario de Ahorro Individual) be used to meet the minimum weeks required for qualifying for a pension in the Complementary Defined Benefit Component (Componente Complementario de Prima Media), even if the legal age for retirement has not been reached?
- If an affiliate chooses to receive an early retirement benefit (prestación anticipada de vejez), will they be eligible to receive a proportionate benefit based on the weeks contributed, which could be lower than the monthly minimum wage?
As things stand, it is expected that the Pension Reform will undergo the legislative process in the Congress of the Republic during this new legislative session, addressing the above-raised questions.
We invite you to review our articles on the significant aspects of Pension Reform and to stay tuned for our upcoming updates as we analyze any developments related to this matter.
