BTN News: Andrés Mauricio Velasco has assumed the presidency of the Colombian Association of Pension and Severance Fund Administrators (Asofondos) at a pivotal moment for the country’s pension system. His tenure begins amid significant changes imposed by the recent pension reform, enacted by President Gustavo Petro in mid-July 2024. The next crucial step is the regulation of this new law, which will set the stage for its effective implementation. Velasco emphasizes that this regulation must be completed before the end of 2024 to ensure a smooth transition to the new pension regime, allowing necessary adjustments to be made well ahead of the reform’s full operation in July 2025.
With the clock ticking, the pressure is on to finalize the regulation of Law 2381 of 2024. Velasco, aware of the magnitude of this task, stresses the importance of thorough feedback from all stakeholders involved in the pension market. His goal is to achieve the best possible regulation, one that will ensure the successful execution and compliance with the new law, ultimately benefiting Colombian citizens.
Velasco acknowledges that the regulation process must address key challenges in two interconnected areas: the legal framework and the operational functionality of the pension system. These elements are critical to ensure that all the players involved—pension funds, Colpensiones (the state pension fund), Asofondos, the Integrated Contribution Payment Form (PILA), the Central Bank, and the Ministries of Health and Labor—are aligned and prepared to handle the upcoming changes. The need for quick decisions on these matters is evident, given the complex and multifaceted nature of the pension system.
One of the most pressing issues is the transition for Colombians who are within ten years of retirement. This group will have the option to switch between Colpensiones and private pension funds (APFs), a decision that requires clear guidelines and careful planning. Another significant aspect is the selection of administrators for the individual savings supplement, as those earning above 2.3 times the minimum wage will need to find a private fund to manage their additional savings. The reform also introduces the concept of equivalencies, allowing individuals to purchase additional weeks of contributions to qualify for a pension. These mechanisms must be clearly regulated to ensure fairness and transparency during the transition period.
Additionally, Colpensiones faces a considerable challenge in restructuring its operations. The organization must upgrade its systems and increase its operational capacity to manage the increased volume of information and ensure smooth service delivery under the new pension regime. The preparation of Colpensiones, from both technological and personnel standpoints, is crucial for the success of the reform.
Progress has been made in preparing for these changes. The Ministry of Labor has held numerous meetings with seven key government entities, including the Ministries of Finance, Health, and Labor, the Financial Regulation Unit (URF), the Financial Superintendency, and the Department of Social Prosperity (DPS). These discussions have focused on creating a regulation that addresses the critical aspects of the pension system’s transformation. A draft of the regulation is expected soon, allowing Asofondos and other stakeholders to review, comment on, and refine it to ensure its effectiveness.
However, the regulation process is not without risks. Velasco points out that the main challenge lies in integrating the legal and functional aspects of the regulation with the operational capabilities of the pension system. Ensuring that all institutions involved have a clear understanding of their roles and responsibilities is essential, especially given the tight timeline. The goal is to have the regulation finalized by the end of 2024, providing sufficient time for technological and operational adjustments before the reform takes effect in mid-2025.
The government’s inclusion of Asofondos and other market players in the regulation process is crucial. While initial meetings have been internal to the government, Velasco notes that the Operational Transition Committee will soon be activated, involving Asofondos in the regulatory process. This collaboration is essential to ensure that the final regulation is practical, well-rounded, and ready to be implemented.
As the deadline for setting the 2024 minimum wage approaches, Velasco underscores the importance of timely regulation. The complexity of integrating technological systems that manage millions of records, as in the case of AFPs, requires careful planning and sufficient time for testing and adjustments. Delays in regulation could significantly shorten the window for implementing these critical changes, increasing the risk of errors and operational challenges when the new system goes live.
While the possibility of legal challenges, such as those from the Constitutional Court, remains a concern, Velasco emphasizes the need to focus on the current law. The pension funds are committed to working within the existing legal framework, adapting to any future court rulings as necessary. The priority is to prepare for the July 2025 implementation date, ensuring that the pension system is ready to serve the needs of millions of Colombians.
Contrary to earlier concerns, private pension funds (AFPs) will continue to play a vital role in the reformed system. Although the capital they manage will gradually decrease as the new system phases in, AFPs will still be responsible for managing individual savings for those earning above 2.3 times the minimum wage. Their role in managing voluntary pensions and other assets ensures that AFPs will remain a key player in Colombia’s pension landscape for many years to come.
The financial implications of the pension reform are significant. Both Colpensiones and the Central Bank will need to make substantial investments in upgrading their systems and processes. These costs, while necessary, will be determined once the final regulation is in place, outlining the specific requirements and responsibilities of each entity involved in the pension system.
In conclusion, Andrés Mauricio Velasco’s leadership at Asofondos comes at a crucial time for Colombia’s pension system. The successful implementation of the 2024 pension reform depends on the timely and effective regulation of the new law. With careful planning, collaboration, and investment, Velasco is optimistic that the reformed pension system will be ready to meet the needs of Colombian citizens by July 2025. The stakes are high, but with the right approach, the new pension regime can deliver on its promise of a more secure and sustainable future for all.
