Colombia to Implement Comprehensive Pension Reform Effective July 2025
Colombia will implement a four-pillar pension reform on 1 July 2025, including solidarity, semi-contributory, contributory, and voluntary programs to enhance old-age income support. The reform was approved by Congress in June 2024, with regulations forthcoming. Employees will face adjusted contribution requirements based on income levels, requiring employers to modify payroll systems accordingly.
Colombia is set to implement a comprehensive reform of its pension system, transitioning to a four-pillar structure that includes a solidarity program, a semi-contributory program, a contributory program, and a voluntary program, effective 1 July 2025. This initiative aims to enhance old-age income support for a broader segment of the Colombian population. The reform bill received Congressional approval in June 2024, and corresponding regulations will continue to be issued until the changeover date.
The initial application of the new pension system will affect men with fewer than 900 weeks of contributions (approximately 17.26 years) and women with fewer than 750 weeks (approximately 14.38 years) of contributions as of 1 July 2025. Individuals who have 900 weeks (men) or 750 weeks (women) of contributions by this date will remain under the existing system. However, those within a decade of retirement will be mandated to transition to the new framework by 16 July 2026.
In the contributory program, the current model requires employees to choose between a defined benefit plan managed by Colpensiones or an individual savings plan with private administrators. The restructured approach will introduce both public and private components for contributions, enhancing the range of options for employees. Contributions will be allocated differently based on earnings, with additional rates designated to fund social assistance benefits.
Under the new regulations, contributions for all employees will continue to be required for the public pension fund on earnings up to 2.3 times the SMLMW. Additionally, employees earning over this threshold will need to contribute to a private savings account for earnings above this level. Employers and employees must comply with mandatory contribution rates set at 12% for employers and 4% for employees, although additional rates will adjust based on higher income brackets starting from 1 July 2025.
The semi-contributory program is targeted at individuals not qualifying for a contributory pension but who possess between 300 and 999 weeks of contributions. Those who do not meet these contribution requirements will have their contributions refunded or receive a government subsidy depending on their circumstances. The solidarity program will provide pensions for the most vulnerable populations, offering a minimum support amount contingent on residency and income status.
Finally, the voluntary program allows individuals to make optional contributions to enhance their retirement savings, though specific structures will not be newly established under the reform. Companies must adjust to these changes and prepare for the adjustments in payroll systems and contribution rates. Employers are encouraged to reach out to Lockton Consultants for further insights into these developments and to evaluate the impacts on employee benefits and financial planning.
In summary, Colombia’s pension reform introduces a more inclusive and structured approach to retirement savings, aimed at providing broader financial support for citizens. With its four-pillar system, the reform offers various options suitable for different income levels and needs. Employers must prepare for the adjustments in contribution requirements and implementation timelines while ensuring compliance with the new regulations to support their employees effectively.
Original Source: global.lockton.com
