Colombia to Implement Comprehensive Pension Reform Effective July 2025

Colombia’s pension reform, effective 1 July 2025, introduces a four-pillar system aimed at expanding old-age income support. It encompasses a solidary program, a semi-contributory program, a contributory program, and a voluntary program, with significant changes in contributions and benefits for employees. Employers must adjust payroll systems to comply with new contribution rates, particularly for higher earners.

Colombia is set to implement a comprehensive pension reform effective from 1 July 2025, transitioning to a four-pillar system that includes a solidarity program, a semi-contributory program, a contributory program, and a voluntary program. This reform aims to enhance old-age income support for a broader demographic of Colombians, thereby improving their financial security in retirement.

The pension reform bill was approved by Congress in June 2024. The initial regulation was introduced through a decree on 3 October 2024, with additional regulations expected before the system’s launch. The reform will initially 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 current system. Individuals nearing retirement age must transition by 16 July 2026.

The contributory program will undergo significant changes, restructuring the existing options under Law 100 of 1993. Employees will be required to contribute to a public pension fund based on monthly earnings up to 2.3 times the legal minimum wage (SMLMW), while those earning above this threshold will additionally contribute to an individual savings account managed by private administrators. Employers and employees are responsible for the mandatory contributions to both components if the employee earns above the stated limit.

For those unable to meet the requirements for the contributory pension, a semi-contributory program will be available for individuals with between 300 to 999 weeks of contributions. A government subsidy will enhance their pension, while those with fewer than 300 weeks will receive a refund of their contributions as a lump sum. Meanwhile, the solidarity program will provide pensions to those aged 65 for men and 60 for women, who meet specific criteria, including residing in Colombia for a minimum of ten years and being classified as vulnerable or in extreme poverty.

The voluntary program offers additional retirement savings options managed by private providers. These plans are flexible and intended for individuals desiring further contributions towards their retirement. Employers must adapt their payroll systems to accommodate the changes in contribution rates, specifically for higher-income employees, which will see an increase from 1% to 1.5%-3% based on income levels.

For further details and assistance, employers are encouraged to consult with their Lockton Consultant regarding the potential implications of these reforms on retirement benefits and employee financial planning. This reshaping of the pension system represents a significant shift in retirement preparation in Colombia, underscoring the urgency for employers and employees alike to stay informed and adjust accordingly.

In summary, Colombia’s impending pension reform, slated for 1 July 2025, will introduce a new four-pillar system designed to broaden financial support for retirees. Key aspects of the reform include a contributory program with distinct public and private components, as well as semi-contributory and solidarity programs for varying eligibility criteria. Employers and employees must prepare for changes in contribution rates and the structure of pension plans. Engagement with professional consultants is advisable to navigate these reforms effectively.

Original Source: global.lockton.com