Colombia’s upcoming pension reform, effective July 1, 2025, will implement a four-pillar system aimed at improving old-age income support. The reform was approved in June 2024 and includes various contributory, semi-contributory, solidarity, and voluntary programs. Significant changes will affect employer contributions and employee coverage, necessitating adjustments in payroll administration.
Colombia intends to reform its pension system by implementing a four-pillar structure comprised of a solidarity program, semi-contributory program, contributory program, and a voluntary program, commencing on July 1, 2025. This initiative aims to enhance old-age income support for a larger segment of the Colombian population.
The pension reform bill received approval from Congress in June 2024, paving the way for the new system’s implementation in July 2025. The initial regulation was decreed on October 3, 2024, with further regulations anticipated before the system’s launch.
Initially, the new pension system will affect men with less than 900 weeks of contributions (approximately 17.26 years) and women with under 750 weeks (approximately 14.38 years) as of July 1, 2025. Individuals with at least the required weeks of contribution will remain under the current system. Furthermore, those within ten years of the retirement age (62 for men and 57 for women) must transition to the new system by July 16, 2026.
The contributory program under the current law (Law 100 of 1993) permits employees to enroll in either a defined benefit plan (Regimen de Prima Media or “RPM”) or an individual savings defined contribution plan (Regimen de Ahorro Individual con Solidaridad or “RAIS”). Participation in both plans simultaneously is not allowed. Contributions are based on monthly earnings, capped at 25 times the monthly legal minimum wage (SMLMW), projected at COP 1,423,500 in 2025.
The restructured system introduces a dual-component contributory program that includes a public pension fund component and a private savings component. All employees are required to contribute to the public component on earnings up to 2.3 times the SMLMW. Those with earnings exceeding this threshold must also contribute to an individual account managed by a private administrator, ensuring consistent contributions based on their income level.
Regarding payment and benefits, pensions will be payable monthly, allowing combinations of annuities and programmed withdrawals. Contributors aged 62 for men and 57 for women, with at least 1,150 weeks of contributions, will be guaranteed a minimum pension equivalent to the SMLMW if the necessary capital is not achieved. Additionally, mothers may reduce their minimum contribution requirement by 50 weeks per child, capping at three children.
The semi-contributory program targets individuals lacking sufficient contributions for a full pension. Those with between 300 and 999 weeks of contributions will receive a lifetime annuity, supplemented by a government subsidy, with a maximum pension cap of 80% of the SMLMW. Meanwhile, individuals with up to 299 weeks will receive a lump-sum refund of their contributions.
Colombia’s pension reform promises significant changes to the retirement landscape by introducing a four-pillar system designed to enhance coverage and support for its citizens. This reform emphasizes equitable support through contributory and non-contributory programs while obligating employers to adjust payroll systems for compliance. Employers are encouraged to engage with consultants to understand the implications and ensure adequate financial planning for their workforce.
Original Source: global.lockton.com
