Academic journal article Social Security Bulletin

Colombia Launches Pension and Health Reforms

Academic journal article Social Security Bulletin

Colombia Launches Pension and Health Reforms

Article excerpt

Toward the close of 1993, the Colombian legislature approved Law 155, creating a new social security pension system that resembles the now 14-years-old Chilean experience in pension reform. At the same time, the legislature also gave its stamp of approval to an ambitious program to extend health-care coverage to an estimated 80 percent of the population. The Colombian social security program, which includes health care, currently covers about 20 percent of the private sector labor force (see Social Security Bulletin, Vol. 56, No. 2, Summer 1993, p. 92).

Young workers currently covered under the traditional social security program will be given the option of remaining under the old system or of joining the newly legislated system. Men aged 40 or under and women aged 35 or under who are joining the labor force for the first time will be required to enroll in the new system. Because of concerns about allowing enough time to generate adequate benefits, men over the age of 40 and women over the age of 35 will be excluded from the new system. This age differential between men and women reflects a similar 5-year age difference provided for men and women under the current social security system.

As under the majority of systems with some form of pension privatization, persons joining the new program may place their contributions among competing pension fund management companies, or Retirement and Survivors Pension Management Funds (AFP's--the Spanish language acronym). Again characteristic of privatization programs, account owners will be allowed periodic transfers of a portion of their contributions from one AFP to another. This last measure is designed to keep the competition among AFP's as keen as possible.

To encourage transfers to the new system and to protect the past contributions of the transferee, the Government will issue bonds in the name of the bondholder to each person. These bonds will not only adjust the value of the past contributions to the rate of inflation since original affiliation, but also will index the value of any benefit payable from those contributions.

With respect to the funding of the individual pension accounts, the new Colombian system departs substantially from the Chilean model on which it is based. …

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