<!-- Start of picture text --> FIGURE II-1 : SOCIAL PUBLIC SPENDING AS A PERCENTAGE OF GDP<br>9.0<br>8.0<br>7.0<br>6.0<br>5.0<br>4.0<br>3.0<br>2.0<br>1.0<br>0.0<br>2010 2011 2012 2013 2014 2015 2016 2017<br>Labor and Social Security Education Health<br>Potable water and sanitation Housing Culture and sports<br>Source: World Bank Group staff estimates based on the Ministry of Finance and DANE (information to March 23, 2019)<br><!-- End of picture text -->

# **_<u>Pensions</u>_**

The Colombian pension system aims to guarantee income to the population for old age, disability, or in case of death. This system is mandatory for all the country's employees and the independently employed, who contribute according to their income. The rate corresponds to 16 percent of salary: employees contribute 4 percent and employers, 12 percent. Self-employed workers contribute to the full percentage. The General Pension System (SGSSP) is divided into two mutually exclusive regimes: The Private Pension Savings scheme (RAIS) and the Public Pension Scheme (RPM).

The RAIS is a defined contribution system, managed by private pension funds (AFP) and where subscriber savings go into an individual account. The only requirement for retirement by this means is that savings and their financial yields be sufficient for a pension not under the minimum wage.<sup>17</sup> In case a person does not reach this level of savings, there are two alternatives. The first is the Minimum Pension Guarantee Fund (FGPM) that helps cover what is needed.<sup>18</sup> The FGPM is financed with a percentage of the contributions made by high-income subscribers. The second alternative is to receive their savings with their respective financial yields. The RPM is a defined benefit public system, managed by Colpensiones, in which the contributions of the subscribers allow funding, together with the National General Budget (PGN), the pension payments of current pensioners. The right to a pension through the public regime is acquired once a person has contributed at least 1,300 weeks and reached an age of 57 years for a woman or 62 years if a man. If these requirements are not met, a substitute Indemnification is received, which is a system created by law to return to subscribers what they have contributed when, once they reach the age, they do not have the requisite number of weeks and cannot continue to contribute.<sup>19</sup> A solidarity component also operates in this regime. In this manner, subscribers or pensioners with a high-income level contribute an additional percentage to subsidize the contribution of vulnerable groups or for subsidies to the elderly poor.

> 17 The minimum wage for 2017 was $737,717.

> 18 This option is available only for individuals who have contributed at least 1,150 weeks, who are 62 years old if they are men or 57 if they are women and who do not have other income above the minimum wage.

> 19 The Indemnification is equivalent to the average base settlement salary on which the subscriber has made contributions (adjusted for inflation), multiplied by the number of weeks they have contributed and by the weighted average of the percentages in regard to which the subscriber has contributed.

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