Country profiles

Colombia

Country profiles

Colombia

Complementary pensions (Mandatory)

Updated: 31 December 2020

Expand
2020: Decree 1291. Related to investments in private equity funds.

2020: Decree 1207. Related to voluntary pension funds.

2020: Decree 1393. Modified the investment regime of the pension funds.

2018: Decree 1486. Created the limit for the investments made in securities issued by entities that belong to the same financial conglomerate which cannot be higher than 8% of the fund's value, including deposits.

2018: Decree 059. Changed the investment regime of the Programmed Retirement Fund, allowing the investment in REITs, Collective Investment Schemes that invest in real estate and Private Equity Funds, among others. It modified the calculation of the Minimum Return for this type of fund, changing the accumulative period and the procedure, as well. This Decree also allows that up to 30% of the fund's portfolio can be valued at amortized cost and the rest at reasonable value.

2016: Decree 765. Modified certain investment classes of the investment regime, including new kinds of allowed asset classes such as REITs, ETFs linked to commodity and currency prices and CIS that invest in real estate and hedge funds, also including the investment limits of such investments. The Decree also restricted investments in other asset classes.

2015: Decree 1385. Allowed investments in Private Equity Funds issued, accepted, guaranteed or owned by the PFM, its subsidiaries, HQs or affiliated companies if those investment vehicles allocate 2/3 of the fund's value in infrastructure projects as established under Decree 816 of 2014.

2014: Decree 816. Created an alternative to invest in private equity funds that invest 2/3 of the fund's value in infrastructure projects under private-public associations.

2013: Decree 1242. Regarding the investment in collective investment schemes.

2011: Decree 857 (Incorporated into Decree 2555 of 2010), introduced investment regime of the resources of the mandatory pension funds and also for the severance payment funds.

2010: Decree 2949 of 2010 (Incorporated into Decree 2555 of 2010), introduced calculation of the minimum return for the different mandatory pension plans, as well as for the short and long term portfolios of the severance payment funds.

2010: Decree 2241 of 2010 (Incorporated into Decree 2555 of 2010), introduced rules of consumer protection of the members of the pension system.

2010: Decree 2373 of 2010 (Incorporated into Decree 2555 of 2010), introduced the multi fund scheme for the resources of the mandatory pension funds.

2009: Law 1328 of 2009, introduced the regime of information and protection of the members and new fees regime. The periodic economic benefits and programmed savings managed through financial entities will be the vehicle for the construction of assistance for the old age that are not part of the benefits payment.

2005: Legislative Act 01, eliminated special regimes (only special pension regimes for public force, the president, teachers and high risk occupations were preserved until July, 2010).

1993: Law of Pensions No. 100 of December 23, implemented in 1994, modified by the law 797 of 2005. The law created the General Pension System (GPS) which introduced the mandatory private pension scheme; regulates the establishment and operation of Pension Fund Administrators (AFPs), asset management and the protection of members and beneficiaries' rights.

Note: The creation of the GPS minimum pension guarantee fund was declared invalid because of flaws in procedure relating to article 14 of Law 797 of 2003, which modified article 65 of Law 100 of 1993. However, article 7 of Law 797 of 2003, which assigns economic resources to the GPS minimum pension guarantee fund, continues in force with regard to the economic application of the guaranteed minimum pension as set out in article 65 of Law 100 of 1993. Nevertheless, the government has still to issue a modified or new statutory decree to clarify which entity is responsible for managing those economic resources.

Expand
Colombia has put in place a dual pension system (the General Pension system (GPS)) comprising both public pay-as-you-go (defined benefit average Premium) social security system and privately managed defined contribution individual account system, introduced since 1994. In addition, two public funds are part of the pension system: The Minimum Pension Guarantee Fund (MPGF) and the Solidarity Pension Fund (SPF).

The public scheme is managed by a public institution, Colpensiones; and the mandatory private pension scheme is managed by Pension Fund Administrators (AFPs). These two systems cover most of the country's employees, including public-sector employees, household workers, and self-employed persons.

Voluntary coverage is also possible.

Private pension personal (mandatory)

Two public funds (the Solidarity Pension Fund (SPF) and the Minimum Pension Guarantee Fund (MPGF)) provide a solidarity component for the private pension scheme.

The mandatory private pension scheme is a defined contribution type of scheme and assets are accumulated in individual accounts. The mandatory private pension scheme is managed by Pension Fund Administrators (AFPs).

Persons who decide to become members of the private scheme must choose to become a member of any AFP by filing a membership application without reference to their employers. Members can also transfer the accumulated capital in their individual accounts to another AFP every six months.

AFP's must be established as public or private companies and may also be established by third sector organizations (cooperatives, trade unions and cooperative banks).

Each AFP may administer several individual capitalization funds: mandatory pension funds, voluntary pension funds, alternative schemes, and a severance payment fund. Mandatory pension funds are defined contribution schemes and the assets, which are accumulated in individual accounts, are the exclusive collective property of the affiliate members. Severance pay funds are mandatory for all workers with an employment contract and are financed by employer's contributions of 8.3 percent of the insured's annual salary.

Since March, 2011 the multi-fund scheme began operations. This scheme was created with the law 1328 of 2009. The main goal of this scheme is to provide members with three types of funds according to their risk profile and manage the resources, in a separate fund, of those who are receiving their pension benefits.

These types of funds (according to the risk profile) are:

1. Conservative fund: For members with low risk profile. Its priority is to preserve the capital of the individual account and its target are members who are close to receiving their pension benefits and prefer to obtain less returns than to be worried about possible investment losses.

2. Moderate fund: For members with moderate risk profile. These members should be willing to accept possible investment losses due to risk exposure of this fund, looking for greater returns in the long term, in comparison with the conservative fund.

3. High risk fund: For members with high risk profile. These members are far from receiving their pension benefits and are willing to accept higher volatilities that can result in important investment losses as a consequence of the risk exposure of this fund, looking for greater returns in the long term, in comparison with the moderate fund.

4. Programmed withdrawal special fund: This unique fund was created for those members of the individual scheme who chose to receive their pension benefits under the Programmed withdrawal option.

AFPs are responsible for the management of the contribution collection, asset management and benefit administration. However, they may outsource contribution collection to other organizations if they wish. At the moment, banks and other financial institutions act as agents to collect contributions and pay out benefits on behalf of the AFPs.

Solidarity Pension Fund: The Solidarity Pension Fund (SPF) is administered in a separate account by the Ministry of Labour. The SPF has a solidarity account and a subsistence account. The fund is used to increase coverage to those members of the population, such as low-income workers, indigents or those in extreme poverty, who could not otherwise participate in the social security system.

Minimum Pension Guarantee Fund: The Minimum Pension Guarantee Fund (MPGF) guarantees minimum benefits. National government determines the organization and administration of the scheme, as well as which entity or entities will administer it. At the moment, it is administered by each AFP in a special account, due that the government has not defined which entity must do it.

Employees and the self-employed may also participate in voluntary complementary pension plans outside the GPS.

Public mandatory pension system

Solidarity Pension Fund: Employees with a monthly contributory base salary higher than four times the minimum monthly national salary must make additional contributions to the Solidarity Pension Fund (on a scale from 1 per cent on four times the minimum monthly national salary to 2 percent on 20 or more times the minimum monthly national salary).

The Financial Superintendence provides general supervision of both public and private individual account systems. Colpensiones administrates the pay as you go system.

Expand
General pension system: The General Pension System (GPS) incorporates the public defined benefit average premium scheme, the mandatory private defined contribution pension scheme and two public funds, the Solidarity Pension Fund and the Minimum Pension Guarantee Fund, which provide a solidarity component for the private scheme.

GPS individual saving scheme: The mandatory private pension scheme is managed by Pension Fund Administrators (AFPs) and by Severance Payment Fund Administrators (AFCs) if they fulfil the same conditions as AFPs.

The establishment and operation of an AFP is subject to the authorization of the Financial Superintendency (SF), which also supervises and regulates the private scheme.

AFPs must be limited liability companies (i.e. privately-owned companies with at least five shareholders) or mutual institutions and at their establishment must have a minimum capital of COP 15,237 million for AFPs and COP 7,631 million for AFCs. The maximum capital must be less than ten times the minimum in order to avoid economic concentration. During the first five years of operations at least 20 per cent of the AFP's capital equity must be on public offer to third sector organizations (cooperatives, trade unions and cooperative banks).

AFPs can be authorized to establish and manage several pension funds simultaneously. However, the value of the funds administered by AFPs must not exceed 48 times the AFP's technical capital (the calculation of which is specified in law).

The members and shareholders of the AFP must elect an auditor to manage the internal audit of the fund's administration.

Two affiliate member representatives (elected from amongst the affiliate members) may participate in, and speak at, the AFP's governing board but may not vote. If the AFP manages both a pension fund and a severance fund there must be one affiliate member representative from each type of fund.

AFPs are responsible for the management of the contribution collection, asset management and benefit administration. However, they may outsource these tasks to other organizations if they wish. At the moment, banks and other financial institutions act as agents to collect contributions and pay out benefits on behalf of the AFPs.

Each AFP must sign a collective life contract with an insurance company under the SF regulations to finance disability and survivors' benefits.

GPS Solidarity Pension Fund: The Solidarity Pension Fund (SPF) is administered in a separate account by the Ministry of Social Protection. The SPF has a solidarity account and a subsistence account. The fund is used to increase coverage to those members of the population, such as low-income workers, indigents or those in extreme poverty, who could not otherwise participate in the social security system.

GPS Minimum Pension Guarantee Fund: The Minimum Pension Guarantee Fund (MPGF) guarantees minimum benefits. National government determines the organization and administration of the scheme, as well as which entity or entities will administer it.

Expand

Covered population

Members cannot be part of both the public and private schemes at the same time. However, they may transfer between schemes every five years up to the last ten years before their legal retirement age in the pay-as-you-go system when they may no longer change schemes. Once the choice has been made, participation in the selected scheme is mandatory for the member.

All covered persons must become members either of the public social security scheme or the private pension scheme based on individual accounts, without reference to their employers.

Membership to the GPS is mandatory for all public or private employees and also for the self-employed.

Membership to the GPS is voluntary for all residents in Colombia or Colombians who live abroad which do not fall in the mandatory category and for foreigners working in Colombia on a contract of employment and who are not covered by their own country's pension regime.

Men aged 55 or more and women aged 50 or more when the new system came into force (i.e. in 1994) are also excluded from the private individual savings scheme, unless they voluntarily decide to become members and contribute for at least 500 weeks. If they do, then the employer contributions also become mandatory.

Enforcement of affiliation

General pension system: Employers are obliged to ask employees to inform them in writing about their chosen pension scheme and the respective administrator, if applicable. This is to ensure that contributions are paid on time and that interest charges are not incurred as a result of late payment.

In the event that an employee does not affiliate to either scheme or does not choose a Pension Fund Administrator (AFP), the employer will select an AFP for the employee (with the proviso that the employee can change scheme or AFP later).

The employer is responsible for paying over all of the contributions, even if no deductions have been made from the employee's salary.

GPS individual saving scheme: AFPs are not allowed to refuse any request for affiliation from eligible persons.

The Financial Superintendency (SF) authorizes marketing agents to operate on behalf of AFPs once it has evaluated their technical capacity. Marketing agents do not, however, have to be registered.

Expand

Sources of funds

Monthly contributions are collected by Pension Fund Administrators (AFPs), or contracted organizations, and must be paid between the first and eighth working day for contributing companies with 200 or more employees; up to the thirteenth working day with fewer than 200 employees; and up to the fifteenth working day for the self-employed.

Member contributions

Private pension personal (mandatory): Covered persons must contribute 4% of salary plus 1% of their salary if it is greater than four times the minimum wage and between 0.2% and 1% of salary if it is greater than 16 times the minimum wage to finance the solidarity fund, which subsidizes low earners. The minimum salary for contribution calculation purposes is equal to the legal monthly minimum wage.

Self-employed persons contribute: 16% of their income, plus the contribution to finance the solidarity fund as described in the above-mentioned paragraph.

The maximum salary for contribution calculation purposes is 25 times the legal monthly minimum wage.

Solidarity Pension Fund: Employees with a monthly contributory base salary higher than four times the minimum monthly national salary must make additional contributions to the Solidarity Pension Fund (on a scale from 1 per cent on, four times the minimum monthly national salary to 2 percent on 20 or more times the minimum monthly national salary).

Contributions are distributed as follows:

• 11.5% goes to the individual account
• 1.5% goes to the Minimum Pension Guarantee Fund
• 3% is shared between the disability and survivor insurance and the management fee

Solidarity Pension Fund: The fund, in addition to the employee contributions, receives contributions from the state, as set out in the budget.

The fund may complete contributions for employees whose contributory base salary or self-employed income is less than the minimum national salary and for members aged 58 or more who have not accumulated enough capital to provide the minimum benefit.

Public mandatory pension system: Covered persons must contribute 4% of salary plus 1% of their salary if it is greater than four times the minimum wage and between 0.2% and 1% of salary if it is greater than 16 times the minimum wage to finance the solidarity fund, which subsidizes low earners. The minimum salary for contribution calculation purposes is equal to the legal monthly minimum wage.

Self-employed persons contribute: 16% of their income, plus the contribution to finance the solidarity fund described on the above-mentioned paragraph.

The maximum salary for contribution calculation purposes is 25 times the legal monthly minimum wage.

Employer contributions

Private pension personal (mandatory): Employers contribute with 12% of the employer's salary, which summed up to the employee's contribution equals to 16% of contribution for the employee's pension fund.

Employers may make voluntary contributions to individual accounts if they wish.

Public mandatory pension system: Employers contribute with 12% of the employer's salary, which summed up to the employee's contribution equals to 16% of contribution for the employee's pension fund.

Other sources of funds

GPS Solidarity Pension Fund: The fund, in addition to the employee contributions, receives contributions from the state, as set out in the Budget.

Methods of Financing

GPS individual saving scheme: Funded in individual accounts.

The Solidarity Pension Fund and Minimum Pension Guarantee Fund may supplement the individual account balances in certain cases.

Asset Management

GPS individual saving scheme: Each Pension Fund Administrator (AFP) may establish and manage several individual capitalization funds and one severance pay fund if authorized to do so by the Financial Superintendence (SF).

Each asset class is subject to quantitative and qualitative investment restrictions determined by the national government.

Securities must be protected against currency devaluation and must guarantee a nominal rate of return, which reflects the financial market interest rate certified quarterly by the SF.

AFPs must follow certain rules regarding investment limits as set by Decree 2555/2010.

Transactions in the official stock market must be electronic transactions according to SF regulations and mechanisms.

AFPs must guarantee a minimum rate of return that is calculated by the SF according to some returns weighted by the asset classes that they represent. If AFPs cannot achieve the minimum rate of return, they must top up the returns from the return stability reserve (see section Financial and technical requirements/reporting) and, if necessary, from their own capital.

All pension fund assets must be held by a custodian and deposited in a securities central deposit (Republic Bank or other institution approved by the SF). Custodians of foreign investments are international banks or foreign custodian institutions.

GPS Solidarity Pension Fund: The fund's resources can only be administered by public fiduciary companies, preferably in the social solidarity sector or by Pension and/or Severance Pay Fund Administrators.

GPS Minimum Pension Guarantee Fund: The government determines the entity or entities that will administer this fund.

Expand

Preservation, portability, transferability

Members may transfer from one scheme to the other every five years after the date of initial membership or previous transfer but they may no longer change schemes in the last 10 years before retirement.

Members who transfer from the public defined benefit average premium scheme to the mandatory private pension scheme, and have made contributions to the public scheme for at least 150 weeks, are entitled to a recognition bond (Bono Pensional), valued on an actuarial basis and will be redeemed if the member qualifies for a disability or survivorship pension or if the member is male and turns 62 years old or if it's a woman and turns 60 years old.

GPS Individual saving scheme: Members may transfer their accounts from one Pension Fund Administrator (AFP) to another once every six months. Each pension fund has 30 days to transfer the resources to the requested AFP by the member.

Members who transfer from the private to the public scheme also transfer the individual account balance to the public scheme.

Retirement Benefits

Benefit qualifying conditions

Private pension personal (mandatory)
Qualifying conditions: individual savings scheme: The member can retire at any time from the AFP if the balance in the member's account is enough to finance a monthly benefit of more than 110 percent of the minimum monthly national salary.

Members aged 62 (men) and aged 57 (women) who have contributed for at least 1.150 weeks, but whose individual account balance is not enough to finance a monthly benefit of at least the minimum monthly national salary, are entitled to obtain the minimum pension from the Minimum Pension Guarantee Fund.

Public mandatory pension system
To qualify for the old-age pension, members must fulfil the following requirements:
1. Be fifty seven (57) years old (women) or sixty two (62) years old (men).
2. The member must have made contributions to the system of at least one thousand (1.000) weeks.

Since January 1, 2005, the number of weeks began increasing in 50 weeks per year and since January 1, 2006, the increase was of 25 weeks per year until 2015 when the final number of weeks, as of 2020, is 1.300.

Withdrawal of funds before retirement

Private pension personal (mandatory): Members aged 62 (men) and aged 57 (women) who have contributed for less than 1.150 weeks, and whose individual account balance is not enough to finance a monthly benefit of at least the minimum monthly national salary, are entitled to a refund of their individual account balance.

Benefit structure / formula

Private pension personal (mandatory)

Retirement benefits are based on the amount accumulated in the member's individual account.

Members can decide between seven benefit options:

• Life pension annuity, in which case they transfer the accumulated capital in their individual account to a life insurance company of their choice in order to purchase a monthly annuity of at least the minimum benefit. Once made, this choice is irrevocable.
• Programmed withdrawal, in which case the Pension Fund Administrator (AFP) holds the accumulated capital in the individual account and pays the retirement benefit. Whilst a member is receiving programmed withdrawal benefits, the remaining accumulated capital in the individual account must be enough to finance a life annuity at least equal to the minimum monthly national salary.
• Programmed withdrawal with deferred life annuity, in which case part of the accumulated capital in their individual account is transferred to a life insurance company of their choice in order to purchase a life annuity payable from an agreed date. The remaining capital is used to provide a temporary income until this date. The deferred annuity must not be lower than the minimum benefit.
• Defined temporary income with deferred life annuity, in which case the beneficiary arranges the payment with a life insurance company of a specific income with a deferred life annuity, which will begin at the moment the defined temporary income period ends.
• Variable temporary income with deferred life annuity, in which case the member can elect to receive a higher benefit payment during the variable temporary income period and lower during the deferred life annuity, or vice versa, depending on the member's needs.
• Programmed withdrawal without negotiating the recognition bond, in which case the member begins to receive the benefit before redemption of the recognition bond issued, under the programmed withdrawal program without negotiating such bond.
• Variable temporary income with immediate life annuity, in which case an insurance company pays the member an immediate life annuity at the moment of retirement, holding in the individual account the necessary resources for the AFP to pay simultaneously a variable temporary income during the period agreed with the AFP.

Public mandatory pension system

Old-age pension cash benefits for insured workers (except permanent disability).

Social security old-age pension: The amount of pension is set between 55% and 65% of the basic average monthly salary of the last 10 years before retirement plus 1.5% for each 50 weeks of contributions of the minimum weeks required and up to 80% of the basic average monthly salary.

The maximum pension is equal to 25 times the legal monthly minimum wage.

The minimum pension is equal to the legal monthly minimum wage.

Benefit adjustment: Benefits are adjusted annually according to changes in the consumer price index.

Disability and survivors benefit are also provided by the social security scheme as well.

Benefit adjustment

GPS Individual saving scheme: Benefits from annuities and programmed withdrawal options are adjusted annually every January according to the Consumer Price Index of the previous year. Pensions based on the minimum monthly national salary are adjusted according to increases in the minimum monthly national salary.

However, according to the law, in the Programmed Withdrawal program, the benefits must be re-calculated every year.

Survivors

Benefit qualifying conditions

GPS individual saving scheme: Eligible survivors receive a survivorship benefit if the deceased member:

• was receiving retirement or disability benefit (for ordinary risk); or
• was an active member with at least 26 weeks of contributions or 50 weeks of contributions in the three years prior to the date of death.

Eligible survivors are:

• life pension: spouse or companion aged 30 or more or under age 30 with children at the date of the member's death. If the deceased member was receiving retirement or disability benefit, the spouse or companion must have cohabited with the deceased for at least five years prior to the date of death;
• temporary pension: spouse or companion under age 30 at the date of the member's death and without children (paid for 20 years); children up to age 18 (age 25 if students, no age limit if disabled); in the absence of the above, parents economically dependent on the member; and in the absence of the above, disabled brothers or sisters economically dependent on the member.

Benefit structure

GPS individual saving scheme: If the deceased member was receiving retirement or disability benefit, the monthly survivorship benefit is 100 per cent of the deceased's pension.

If the deceased was an active member, the monthly survivorship benefit is 45 per cent of the contributory base salary plus 2 per cent for each 50 additional weeks of contributions up to the first 500 weeks of contributions, up to a maximum of 75 per cent of the contributory base salary.

The spouse or permanent companion receives 50 per cent and the children receive the other 50 per cent, distributed in equal parts according to the number of eligible children.

When there are no children, or when their right is lost or extinguished, the total pension is paid to the spouse or permanent companion of the deceased.

When there is no spouse or permanent companion or when their right is lost or extinguished, the total pension is paid to the children of the deceased.

When there is no spouse or permanent companion, nor children with rights, the total pension is paid to the deceased's parents.

When there is no spouse or permanent companion, nor children, nor parents with rights, the total pension is paid to the deceased's heirs.

If the deceased was an active member, the survivorship benefit is financed by the accumulated capital in the individual account resulting from mandatory contributions, plus the recognition bond if applicable, plus the additional amount necessary to finance the benefit provided by the insurance company.

If the deceased was receiving retirement benefit, the survivorship benefit is paid to beneficiaries financed in the same way as the retirement benefit. If the deceased's retirement benefit was paid as programmed withdrawal or programmed withdrawal with deferred annuity, any excess in the individual account balance over the capital required to finance the benefit may be used to increase the survivorship benefit.

Survivors may contract with an insurance company other than the one that provided the amount necessary to finance the survivorship benefit. This only applies to the benefit form of payment of programmed withdrawal.

The minimum survivorship benefit cannot be less than the minimum monthly national salary (COP 877,803).

If the account balance is insufficient to finance the minimum benefit, members are entitled to a top-up from the GPS Minimum Pension Guarantee Fund. The maximum survivorship benefit in this case is 75 per cent of the contributory base salary.

If the member dies without fulfilling the qualifying conditions, the individual account balance and the recognition bond, if applicable, are paid to survivors.

A lump sum payment for funeral expenses amounting to the last contributory base salary or the last retirement or disability benefit received, may be paid by the Pension Fund Administrator (AFP) or insurance company to the person who paid for the deceased member's funeral. This payment must be between five and ten times the minimum monthly national salary.

Benefit adjustment

N/A

Disability

Benefit qualifying conditions

GPS individual saving scheme: Members whose work capacity is reduced at least 50 per cent because of disability resulting from ordinary risk (disability caused by occupational risk is covered by the work injury system).

Members aged 20 or more must have a minimum of 26 weeks of contributions in the last year, or a minimum of 50 weeks of contributions in the three years immediately before onset of disability and have contributed to the scheme for at least 20 per cent of the time between age 20 and the onset of disability caused by illness or accident.

Colpensiones, the occupational risk administrator, the insurance company and health companies assess the degree of disability and against their decision there are two appeals: Regional and National Disability Qualification Committees.

Benefit structure

GPS individual saving scheme: In the case of reduction in work capacity between 50 per cent and 66 per cent, the monthly benefit is 45 per cent of the contributory base salary plus 1.5 per cent for each additional 50 weeks of contributions up to the first 500 weeks. In the case of reduction in work capacity higher than 66 per cent, the monthly benefit is 54 per cent of the contribution base salary plus 2 per cent for each additional 50 weeks of contributions up to the first 800 weeks.

Disability benefit is financed by the accumulated capital in the individual account resulting from mandatory contributions, plus the recognition bond if applicable, plus any additional amount necessary to finance the benefit provided by the insurance company.

If the Regional Disability Qualification Committee confirms that disability has ended, the insurance company must return the reserved retirement balance to the individual account. Contributions to retirement pension are considered as paid for periods during which a member is in receipt of disability benefit.

The minimum disability benefit cannot be less than the minimum monthly national salary (COP 877,803). The maximum disability benefit is 75 per cent of the contributory base salary.

If a disabled member does not fulfil the qualifying conditions for disability benefit, the individual account balance and the recognition bond, if applicable, are returned to the member. Otherwise, members may maintain the individual account and continue contributing to achieve the minimum individual account balance necessary to receive retirement benefit.

Benefit adjustment

N/A

Expand

Protection of Assets

GPS individual saving scheme: The assets of each pension fund must be kept separately from the assets of the Pension Fund Administrator (AFP) which manages those funds. Fund assets must be held by a custodian and deposited in a securities central deposit (Republic Bank or other institution approved by the Financial Superintendency (SF)). Custodians of foreign investments are international banks or foreign custodian institutions.

If an AFP or insurance company fails in their duties, 100 per cent of members' savings resulting from mandatory contributions and up to 150 times the minimum monthly national salary (COP 877,803) resulting from voluntary contributions, as well as benefits in payment, are guaranteed through the state-run Financial Institutions Guarantee Fund (FOGAFIN) to which AFPs must contribute.

The GPS Minimum Pension Guarantee Fund provides the resources to pay the minimum benefits where individual account balances are insufficient and qualifying conditions are met.

Financial and Technical Requirements / Reporting

GPS individual saving scheme: Pension Fund Administrators (AFPs) must maintain a return stability reserve for each pension fund that they manage in order to guarantee the minimum rate of return calculated by the Financial Superintendency (SF). The reserve minimum amount is 1 per cent of the pension fund balance and is funded from the AFP's assets. The reserve must be kept separately from the AFP's other assets and those of the pension funds it manages.

AFPs must periodically report the pension fund rate of return to members and to the SF.

AFPs must submit information regarding pension funds' financial statements, fund valuation and rate of return to the SF daily.

AFPs report monthly to the SF statistics of affiliates and pensioners.

When an AFP fails to fulfil the SF's orders or instructions, or when there are grave inconsistencies in the information which, in SF's judgment, inhibit the disclosure of the entity's true situation, the SF can rescind the authorization of an AFP.

GPS minimum guarantee pension fund: Pension Fund Administrators (AFPs) must report the balances in the GPS Minimum Pension Guarantee Fund accounts daily to the SF. Additionally, the Law of Commerce obliges Fiscal Revisers (persons designated by AFP members and shareholders to audit the management of the fund) to inform the relevant authorities about any anomaly in the AFP's activities.

Whistleblowing

GPS individual saving scheme: No legal rules.

Standards for service providers

GPS individual saving scheme: The Financial Superintendency (SF) must verify the suitability and experience of the auditor appointed by a Pension Fund Administrator's (AFP) shareholders to manage the internal audit of the AFP.

The SF examines the character, suitability and experience of the fiscal reviser and can refuse to authorize an auditor.

Fiscal revisers (persons designated by AFP members and shareholders to audit the management of the fund) are authorized by the SF. Custodians must be authorized by the SF and the required qualities for investment managers are regulated in the pension funds' investment regime.

Fees

GPS individual saving scheme: Individual saving scheme: Pension Fund Administrators (AFPs) may charge a maximum fee of 3 percent of the contributory base salary. It is used to meet the costs of managing mandatory contributions and to pay the disability and survivorship insurance.

AFPs may charge additional fees for programmed withdrawal benefit management (maximum 1 percent of monthly returns on the individual account balance, not exceeding 1.5 percent of the benefit paid), for the management of the fund of the unemployed (maximum 4.5 percent of the monthly return on the individual account balance, not exceeding 50 percent of the fees charged for the mandatory contributions), for the members' scheme transfers (maximum 1 percent of the last contributory base salary and up to a maximum of 1 percent of four times the minimum monthly national salary), and for receiving voluntary contributions (commission on voluntary contributions may range between 2 percent and 4 percent annually on the balance registered on the individual account).

Winding up / Merger and acquisition

GPS individual saving scheme: A Pension Fund Administrator (AFP) must be wound up if the contract between the shareholders that established the AFP expires, if there are insufficient shareholders in the AFP, due to causes specified in the contract, if an AFP's shareholders decide to wind it up, if there is a loss of the 50 per cent of the capital subscription of the AFP, or when one shareholder owns 95 per cent of the equity of the AFP or by intervention by the Financial Superintendency (SF).

The SF always supervises the process and has the right to object to it within two months of the start of the winding up procedure.

Bankruptcy: Insolvency Insurance / Compensation Fund

GPS individual saving scheme: Pension Fund Administrators (AFPs) must contribute to the state-run Financial Institutions Guarantee Fund (Fondo de Garantía de Instituciones Financieras - FOGAFIN) from their own resources to assure the reimbursement of 100 per cent of the individual account balances including returns resulting from the mandatory contributions, and up to 150 times the minimum monthly national salary, resulting from voluntary contributions, in the event of the AFP's dissolution or liquidation.

Disclosure of information / Individual action

GPS individual saving scheme: At least quarterly, Pension Fund Administrators (AFPs) have to send members a statement showing the amount of contributions deposited, returns, account balances and fees paid.

A Pension Fund Administrator Ombudsman (Defensor del Cliente) and a deputy must be appointed for a two-year period (renewable) by an assembly of the AFP's shareholders. The Ombudsman and the deputy are employees of the AFP whose duties are to resolve freely and objectively any claims from the affiliate members.

Other measures

GPS individual saving scheme: None.

Expand

Taxation of member contributions

Tax-exempt.

Taxation of employer contributions

Tax-exempt.

Taxation of investment income

Tax-exempt.

Taxation of benefits

Tax-exempt.

Expand
Financial Superintendency: regulates, supervises and ensures that the operations of the mandatory private pension schemes and the mandatory severance pay schemes are in compliance with legal requirements. It is an integrated institution which also regulates banks, insurance companies, fiduciary societies and brokerage firms. The Financial Superintendency (SF) is part of the Ministry of Finance and is financed by fees paid by supervised entities.

The SF has the powers and functions to:

• supervise Pension Fund Administrators (AFPs) and insurance companies and ensure they have the level of capital and assets levels required by regulations
• supervise the level of AFPs' return stability reserve
• supervise the winding up of AFPs
• regulate AFPs' procedures for member affiliation and transfer
• calculate the funds' minimum rate of return
• ensure that AFPs adopt administration, control and risks management mechanisms
• approve internal regulations and publicity of AFPs
• impose sanctions on AFPs in cases of violation of legal requirements
• supervise that the AFPs follow the rules regarding the investment regime established by the national government.

Superintendencia Financiera
Calle 7 Nro. 4-49
Bogotá, D.C.
Colombia
Tel.: (+571) 5 94 02 00/01
Fax.: (+571) 3 50 79 99 - 3 50 57 07
Internet: http://www.superfinanciera.gov.co

 

Report an error

Expand

Copyright

Short excerpts from the Country Profiles website may be reproduced without authorization for non-profit purposes on condition that the source is indicated. For for-profit purposes, rights of reproduction, or translation, application should be made to the ISSA Secretariat at ISSAISD@ilo.org.