The entrance into operation of the private pension system in Colombia has generated “significant impact” on the economic growth, the increase of savings and to a greater extent the financial system. In terms of growth, the annual increase ranges between 0.3% and 0.8%; as far as the savings, the annual increase is 1.5% of the GDP, while the financial depth increased 0.19% of the GDP. These are some of the conclusions that Fedesarrollo came to, after conducting a study about the impact of a reform on the Pension System in Colombia, and which they explained this past Friday during the second working day of the VI Asofondo Congress and the XI International Congress of the International Federation of Pension Fund Manager (FIAP).
Fedesarollo, one of the most important economic research centers in Colombia, revealed the results from a recent study, whose objective was to measure the effect caused by the creation of the Individual Savings System (pension funds) over the economic development of the country.
In this direction, the director of Fedesarrollo, Leonardo Villar, emphasized that “without any doubt, the pension reform, which gave life to the individual saving system, has benefited the economic development of the country, with important effects which could increase if the informality and the employment were lower in Colombia”.
In regards to the reform of the Pension system, whose Bill will be presented to the Congress in the upcoming weeks, Villar stated that “preliminary estimates shows that an amount of $4.1 billion will stop going to the Individual Savings System in order to pass over to the public system, as it is presented in the proposal by the national government”.
“This reform has a cost in terms of growth. How much? A reduction between 6 to 20 basis points of the economy, with a negative impact in regards to the savings and the financial depth”, Villar assured.
The researcher explained that what is known in regards to the proposal up until now is only partial, meaning that its fiscal impact and other side-effects are still unknown. He further stated that some aspects related to tax savings, transitional regimes, and special schemes, still need to be clarified. In any case, the country will choose a structural reform that will allow “a totally acceptable retirement system” and that will offset the possible side-effect that might come with it.