Social Security

Colombia | New Pension Law

Summary

On July 16, 2024, a new pension law (Law 2381 of 2024) was published, introducing significant changes to the pension regimes. The law takes effect on July 1, 2025.

The detail

1. The new pension law establishes a pension system based on four pillars:

1. Solidarity Pillar: Designed for Colombians in extreme poverty, poverty, and vulnerable groups. This pillar provides a basic solidarity income at least equal to the extreme poverty line.
2. Semi-contributory Pillar: For individuals who, by age 65 (men) and 60 (women), have not met the requirements for an old-age pension despite having contributed to the system. They receive a lifelong economic benefit, capped at 80% of a minimum wage in Colombia. This benefit is not considered a pension.
3. Contributory Pillar: Provides pension for old age, disability, or survivors. A single pension is calculated by combining 2 components:
   • The Prima Media scheme (A Traditional public pension system where the state manages contributions and payouts) and
   • The Ahorro Individual scheme (An individual saving system managed by private pension funds).All system affiliates contribute to the Prima Media scheme with income up to 2.3 minimum wages.
   • Additionally, Individuals with income between 2.3 and 25 minimum wages also contribute to the Ahorro Individual scheme.
4. Voluntary Savings Pillar: Allows individuals to make voluntary savings through financial system mechanisms to supplement their old-age pension.

2. Contributions: Pension contributions remain calculated at 16% of the Contribution Base Income (IBC) reported monthly. However, individuals with a base income greater than 4 legal monthly minimum wages (SMLMV) must pay an additional contribution to the pension and subsistence solidarity fund, which varies between 1% and 3% depending on the number of SMLMV reported:

	Percentage
Between 4 and 7 MMLS	1.5%
Between 7 and 11 MMLS	1.8%
Between 11 and 19 MMLS	2.5%
Between 19 and 20 MMLS	2.8%
More than 20 MMLS	3%

3. Foreign employees: The requirements remain unchanged. Foreign employees are not required to make contributions in Colombia if they are already contributing in their country of origin or in another country.

4. Companies as contracting parties: Companies must deduct pension contributions from their contractors and transfer them to the pension system.

5. Requirements for old-age pension: A single pension is calculated by combining 2 components:

i. Prima Media scheme:

• Age requirement: 57 years for women and 62 for men and
• Contribution requirement: 1300 weeks of contributions. For women, this will be reduced to 1000 starting January 1, 2026, with a reduction of 25 weeks per year from January 1, 2025, until 2036.
• Pension calculation formula:

R = 65.50 – 0.50s
s = Number of minimum wages corresponding to the contribution base of the Prima Media pillar.

• IBL = Average of the contribution base of the Prima Media scheme during the last 10 years of contributions, adjusted for inflation. If the contribution base over the entire working life is higher, that contribution base is used.

ii. Ahorro Individual scheme: The pension is calculated using an actuarial formula that provides a monthly income until death and covers legal beneficiaries as well.

6. Transition regime: The law does not apply to individuals who have 750 weeks of contributions (for women) and 900 weeks of contributions (for men) by the time the law takes effect on July 1, 2025.

Actions

Companies should wait for further instructions from the Government as the law will be regulated and take effect in July 2025. However, the following areas may be impacted:

1. Payroll: Payroll systems will need to be updated to reflect the new rates for pension and subsistence solidarity fund once the law takes effect. The Companies will also have 2 groups of employees: Those under the transition regime and those covered by the new law.
2. Contractors: Ensure that pension contributions are being correctly deducted and transferred according to the new requirements.

Additionally, Companies may communicate these changes to employees to help them understand the new law, including the different pillars, the transition regime and how the new regulations will impact their pension.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Melissa Russo Coba
Senior Manager

Further information on Vialto Partners can be found here: www.vialtopartners.com

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