Colombia: Pension and Labour Reforms
In recent months, Colombia has witnessed significant activity in legislative circles, particularly in the realms of pension and labour reforms. Here’s a comprehensive overview of the latest legislative updates shaping the country’s socio-economic landscape:
PENSION REFORM:
The pension reform, one of the three major social reforms promoted by the government of Gustavo Petro, was approved by the Senate of the Republic last Tuesday, April 23. The next step for the reform to become law will take place in the House of Representatives where it will face a third debate in the Seventh Commission and subsequently in the plenary session of the House.
These were the five key points debated in the Senate:
Firstly, the contribution threshold to Colombian Pension Administrator (Colpensiones) was set at 2.3 current legal monthly minimum wages. If a person earns more than this, the excess must be contributed to a pension fund administrator of the individual savings component. For example, someone earning $4,000,000 would contribute 16% of their salary to Colombian Pension Administrator (Colpensiones) on $2,990,000 and 16% to a pension fund administrator on $1,010,000. Once the affiliate has 1300 weeks of contributions and reaches 62 years old for men and 57 years old for women, they will be entitled to a single comprehensive old-age pension.
Secondly, people who contribute between 300 and 1000 weeks will no longer receive a refund of their contributions in a lump sum but will receive a lifetime annuity lower than the current legal monthly minimum wage, with a subsidy increasing the capital by 20% for men and 30% for women.
Thirdly, women with incomes lower than the current legal monthly minimum wage who do not have an employment or contractual relationship will be allowed to make contributions solely to the pension based on the minimum wage without needing to contribute to health. Mothers will also be able to reduce the minimum pension weeks by 50 weeks for each child, up to 850 weeks.
Fourthly, the contribution to the Solidarity Pension Fund will increase based on income levels, with those earning more than 20 SMMLV contributing 16% to the pension system and 3% to the Solidarity Pension Fund.
Finally, the transition regime is maintained for women with 750 weeks of contributions and men with 900 weeks credited when the new system takes effect, expected on July 1, 2025. These individuals will follow the previous system and will have two years to switch pension systems if they are within 10 years of retirement age.
DECREE 0533 OF 2024:
The Colombian Ministry of Labour issued Decree 533 of 2024 29April 2024, which replaced Section 10 of Chapter 1 of Title 6 of Part 2 of Book 2 of Decree 1072 of 2015, the Single Regulatory Decree of the Labour Sector, and regulated the Incentive for the Creation and Retention of New Formal Jobs.
The incentive, grounded in Laws 2166 of 2021 and 2294 of 2023 (National Development Plan 2022-2026) and Decree 1736 of 2023, aims to support employers in financing their labour, social security, and parafiscal costs when they generate new jobs by hiring new workers for a term of not less than six months.
Key Points of the Decree:
- Incentive Details:
The incentive supports employers in financing their labour, social security, and parafiscal costs when they generate new jobs by hiring new workers for a term of not less than six months.
- Eligible individuals include:
- Young people aged 18 to 28: 30% of 1 current legal monthly minimum wage per worker.
- Women over 28 earning up to three current legal monthly minimum wage: 20% of 1 current legal monthly minimum wage.
- Men over 28 earning up to three current legal monthly minimum wage: 15% of 1 current legal monthly minimum wage.
- Persons with disabilities: 35% of 1 current legal monthly minimum wage-
- Eligibility Criteria:
Beneficiaries include natural and legal persons, consortia, temporary unions, and autonomous trusts demonstrating their status as employers through the Integrated Contribution Payment Form (PILA).
- Rules for Beneficiaries:
Incentives are based on the number of employees reported in the Integrated Contribution Payment Form (PILA) for May 2023 compared to the postulation period.
Employers must have made timely payments for social security for all workers on the payroll.
- Application Process:
- Employers must submit the following documents to their financial institution or savings and credit cooperative:
Signed request by the legal representative or natural person employer expressing the intention to be a beneficiary of the incentive.
Certification signed by the legal representative, natural person employer, or fiduciary representative certifying various requirements.
Copy of the Unique Tax Registry (RUT) issued in the six months prior to the application.
This decree marks a significant step towards incentivizing the creation of new formal jobs in Colombia.
LABOUR AND EMPLOYMENT LEGAL REFORM:
In August, a significant labour reform proposal was introduced by the government through Project Law 166 of 2023. This proposed legislation aimed to address various aspects of the labour landscape in Colombia. Subsequently, it was merged with two other labour reform projects: Project Law 192 of 2023 (presented by the Conservative Party) and Project Law 256 of 2023 (presented by the National Association of Industrialists – ANDI).
On 14 December 2023, the Seventh Committee of the House of Representatives voted and approved 16 articles out of the 98 that make up the reform. However, since that vote, no further sessions have been scheduled in the Seventh Committee of the House of Representatives. As a result, there has been no recent progress in the legislative process beyond various working sessions aimed at reaching consensus and voting on the remaining articles.
The lack of progress poses a challenge for the advancement of this reform. Additionally, the efforts of the Seventh Committee of the House of Representatives are currently focused on the labour reform, which is nearing approval. Consequently, little movement is expected on the proposed labour reform. This situation increases the risk of its being archived, as it must be approved by law before June 20, 2024, the end of the legislative term. Failure to do so would result in its automatic archiving, making time its greatest adversary.
