Will 2020 be the year of pension and labor reforms?

Many wonders if the Government will try this year to promote the substantive changes required
by the pension system and the country's labor regime, at a time when social tensions rise.
The National Committee of the Unemployment , which convened in November the marches that
have spread throughout the country, he asked the Government to refrain from presenting reforms
on the labor and pension fronts . Even in the midst of the demonstrations, and given the supposed
leak of the draft pension reform, the Government quickly came out to deny that it had a proposal,
and clarified that it is advancing a process of consultation with several sectors. 
But the country is eager to know the reforms that the Government will take to Congress. This
week, analysts, unions, businessmen and congressmen, in the framework of the Colombia 2020
Forum of WEEK and Money , asked the Government to uncover their letters and dive into the
reforms. The reason is that the pension issue became inaccessible and a good part of the
responses to the social clamor go through solving the labor problems. In other words, you have to
start discussing the issue.   
Today, only two out of ten older adults have a pension while the bulk of the population over 60 is
unprotected. This happens because the public system benefits those who have more. “It is
necessary that the Government show the letters. While there is a concerted process in progress,
the Government must start the debate, ”says Senator Richard Aguilar .    
But the Minister of Labor, Alicia Arango, has another vision. She believes that the Government
should only jump into the water when it is certain that it will reach the other shore. "It is not an
easy subject. There are many ideas on the table and we have listened to all parties to try to build a
joint proposal and do it well takes time,” says the minister. 
In the Ministry of Finance they consider pension reform a priority and that is why they plan to take
it to Congress in the first semester. “In the ministry we have four priority reforms in 2020: (1) the
Old Age Protection reform, which will seek to improve the coverage of the system and make a
better distribution of public spending, (2) a capital market reform, (3 ) the regulation of the royalty
law to improve its distribution and execution and (4) a law of clean growth and sustainable
development ”, says the Deputy Minister of Finance, Juan Alberto Londoño.  
This confirms that even differences remain in the Government. Some consider it a monumental
mistake to start the pension debate in the midst of an environment convulsed by social
nonconformity. Others claim that it is responsible and could allow the Government to retake its
equity flag. 
Certainly, the Commission for the Protection of Old Age has been listening to proposals from
unions, pensioners, unions, research centers, universities, multilaterals and political parties,
among others. And it is time to start the open debate in the Permanent Commission for the
Coordination of Wage and Labor Policies, where the Government undertook to take its proposal
before submitting it to Congress.  
Although pension reform can be very costly politically for any government, the situation does not
wait. The pension system is complex and the debate about a reform lends itself to spreading many
lies or half-truths because it touches many interests. You just have to see the protests that Macron
faces in France on this issue , what is happening in Chile or the cost that Bolsonaro meant for a
pension reform in Brazil.  
In Colombia, the Government has put some red lines and has pledged not to modify the pension
age - 62 years for men and 57 for women - or touch the contribution rate. Among its immovable
points there is also respect for acquired rights and the survivor's pension. In addition, he has
emphasized that he will protect and strengthen Colpensiones .    
Some analysts and thought centers such as Anif believe that a reform without modifying some of
these issues would be halfway and that the Government will not achieve everything it
wants. However, ensuring a more equitable distribution of state subsidies and directing them to
the most vulnerable would be a breakthrough. 
Why are they unplayable?
In 2020 the Government will have to allocate around 43.29 billion pesos to pay state
pensions. This means 20 percent of this year's budget. One of the highest expenses that the State
makes ends up benefiting a privileged few.  
Of the 6.56 million older adults, only 2.35 million have retired. In average premium, which
manages Colpensiones, there are 1.3 million; 153,000 individual savings pensioners, and the rest
are in special regimes such as the Armed Forces and teachers. About 1.5 million older adults
receive a small subsidy in Colombia Mayor or Beps and the rest are unprotected.  
The Government insists on talking about comprehensive reform of old-age protection not only to
improve coverage, but also to reduce inequality derived from a public system that provides
millions of subsidies to those who did better in the labor market. While someone who earns 1.5
minimum salaries receives around 74 million pesos of subsidies in present value, who retires with
25 minimum wages obtains more than 732 million pesos from the State. 
That is why the consensus is growing about strengthening solidarity programs such as Colombia
Mayor and the Periodic Economic Benefits (BEPs), and preventing the public system from
continuing to grant subsidies to people with higher incomes.
But there is no clarity on what to do so that the public medium premium regime (Colpensiones)
and private funds stop competing with each other and become complementary. Where to draw
the line between these two sectors? In other words, define how far subsidies should go and how
long, for which it will be key to propose an adequate transition regime.     
Colpensiones will have a key role in this new model. But it will also be necessary to promote
greater transparency and competition among pension fund managers, as well as review the way in
which they invest to improve the profitability of what they offer.
Luis Fernando Mejía, director of Fedesarrollo, believes that this reform of old-age protection is
necessary but not sufficient. He proposes to work in parallel a labor reform. The problem today is
that unemployed young people who cannot contribute will become old without a
pension. Therefore, reforms must be undertaken to generate employment and reduce high
informality. The unemployment rate ended 2019 in two digits and informality still affects half of
the active population.    
Undertaking these reforms is very complicated. The Government's announcement to regulate
social security issues for digital applications and platforms or the social protection floor for people
who earn less than a minimum wage has generated great controversy.
Bruce Mac Master,  president of Andi, says he does not understand how with all these problems
there are people who defend not making changes, and particularly unions. "The status quo is not
an option," he says. He adds that the Government and the country cannot stop these discussions
or refrain from making the required reforms. The senator agrees on this point and affirms that his
party, Radical Change, wants to lead this discussion, since the pension is a time bomb. 
They do not lack reason. The net value of the pension debt at present value reaches 114 percent
of GDP (900 billion pesos). “It is a matter of responsibility. The government cannot govern with the
fear that the street will react or there will be protest,” he says. The road will not be easy. The
rating agency Fitch Ratings considers it difficult for Colombia to approve the pension reform this
year or in the next two. This would affect future prospects.   
Undoubtedly, this issue requires everyone's responsibility: Government, unions, workers,
academia, unions and businessmen. As Minister Arango has said, everyone will have to give a little
for everyone to win, especially the most vulnerable.