Pensions are part of the social security system, to which all employees and independent contractors should be affiliated and contribute. Mandatory pension contributions are 16% of employees' salaries - this contribution is divided between the employer (12%) and the employee (4%).
In July 2024, Law 2281 was enacted introducing a new pensions system in Colombia. The new system will be adopted from 1 July 2025, meaning that there will be a period where there will be two pension systems operating simultaneously.
Current pension system:
Public Pension System - This is managed by "Colpensiones". It is called "Average Premium Regime" and is a DB arrangement. The employee's savings go to a common fund and pension requirements are based on age and the number of contributed weeks. Once the requirements for retirement are met, the employees receive a pension for life.
Private Pension System - This system is managed by private pension funds and is called the "Individual Savings with Solidarity System". The employee’s savings go to an individual account. Requirements are based on accrued capital. The employee can choose between a life annuity to receive a pension allowance for life or a programmed withdrawal to receive a pension allowance for a certain period of time. There are other pension models available, but these two are the most commonly used.
New pension regime:
The new Colombian pension system will consist of four pillars: (i) the "solidarity pillar"; (ii) the "semi-contributory pillar"; (iii) the "contributory pillar"; and (iv) the "voluntary savings pillar". Individuals with an income above a minimum statutory amount must make a mandatory contribution to the contributory pillar.
All individuals (independent contractors, employees, self-employed employees) who contribute to the pension system must be in the Public Pension Fund - this is managed by "Colpensiones". The pension contributions go to a common fund.
Provided an individual´s income exceeds a certain amount, the individual must choose and contribute the excess to a private pension fund. The employee’s contributions go to an individual account that will complement their basic retirement pension. In order to retire, there are certain legal requirements that have to be met.
On a change of control, the transferring employer must deregister the employee from the social security pension system and the new employer should register the employee in the pension and social security system. Mandatory state plans and private pension plans (if applicable) "follow" employees and are not dependent on employers.
Non-statutory pensions are not currently permitted.