Population ageing demands a different path than lowering the retirement age

Following President Gustavo Petro’s proposal that the country should study a reduction in the mandatory retirement age, which some sectors described as a smokescreen, the situation of the retirement system in Colombia is back on the news agenda, as there are those who say that It is a necessary measure to fight against inequality and others who warn that the way is the other way.

Last week ended with the head of state stating that “wealth is not It is in the long work day; that is a cart, that is for slaves. Do not deceive the people any more, wealth is in free time to enjoy life” and that due to this “humanity should see that instead of increasing the retirement age, what we should already be discussing throughout the world is how to reduce it.”

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These words were made in the middle of the march called by sectors related to the Government to support the pension reform, whose future is being defined in the Constitutional Court, and although it could have a laudable purpose, according to the unions and experts in the field, it is not consistent with the population dynamics, nor with the fiscal situation of the Nation, which these days faces serious cash flow problems.

Population decline

A starting point for evaluating whether or not it is convenient to lower the retirement age could be in the report published last month by the Fedesarrollo Economic Research Center, which warns that after the pandemic there are fewer and fewer births in the country and that due to this, the population decline which was estimated for 2065, is now expected to arrive in 2051, according to data from Dane.

These researchers also argue that during the 20th century, Colombia experienced a notable drop in birth rates, going from 27.4 births per 1,000 inhabitants in 1990 to 15.6 in 2015. This decline is attributed to factors such as the increase in the educational level of women, greater participation in the labor market and better access to family planning methods, leading to a point where the birth rate in 2022 was 13.9 per thousand inhabitants.

Likewise, Fedesarrollo explained that moments like the pandemic were determinants of the demographic transition, as deaths also increased during this period and the number of births changed, as did long-term life expectancy, thanks to advances in medicine and improvements in the provision of health services.

Simply put, people are living longer, but there are fewer young people who will work in the future and help maintain the system through their contributions, which creates risks. Although Colombia is currently in a period of demographic bonus where there is a large number of contributions, this will only last until 2047 and from then on the tax burden will be felt more.

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Less births

While President Petro’s proposal was being debated last week, the DANE presented the most recent balance of birth and death statistics in the country, which reaffirms the idea that fewer and fewer people are choosing to have children, while life expectancy is continues to rise, accelerating the possibility that population decline will come sooner than expected.

According to reports from the statistical authority, 255,055 live births were recorded during the first half of 2024, a figure that translates into a 15.2% reduction in the number of births compared to the same period in 2023. Likewise, the lowest figure was reached in the period between 2015 and 2024.

Based on data such as the one already mentioned, José Ignacio López, president of Anif, He stresses that lowering the retirement age is not a good idea, especially when “what we are seeing in most countries is the need to increase the retirement age because life expectancy has been increasing significantly” and thanks to technology, people are able to live longer.

“If the age is lowered, here in Colombia or in any other country, the pension system would become more unsustainable and that would have effects on the fiscal sustainability of the countries and also on the sustainability of the system itself and therefore could end in a collapse of pensions for retirees and precisely against seeking protection for older adults,” he stressed.

Take care of savings

Andrés Velasco, president of Asofondos, also raised objections to the President of the Republic’s idea, arguing that the important thing is to protect the savings of Colombians, since in the long run this becomes a resource that serves as support to maintain the pension system. He also stressed that the problem could be on other fronts such as informality.

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“One would think that if the problems of the Colombian labor market were solved, such as low labor participation (especially among women and young people), informality, high unemployment, labor productivity; one could consider these kinds of measures, but that is not the case. In developed countries where there are no such problems, retirement ages are also rising. In the OECD, the average age is rising from 64.5 to 66.5 years,” stressed this expert on pension issues.

Finally, José Luis León, country head of Natixis Investment Managers for Colombia, addressed the issue from the report they presented on retirement prospects in the local market, which fell from 37% to 33% in the last year, mainly due to the loss of competitiveness compared to peers in the region.

“We are getting older and the pyramid is becoming more of a square and it will surely become an inverted pyramid later. At this moment, for every worker in the world, there are more or less ten people who are supporting their pension system, but by 2050 it is expected that this ratio will drop to 2 to 1, that is, it will be worrying and what is done clearly in terms of increasing the retirement age is something that is practically inevitable,” he said.

Beyond whether it should be done or not, the truth is that the country is preparing to implement the pension reform that was approved last semester, which, although it does not establish a change in the retirement age, will generate a heavy tax burden due to the high number of people who will depend on a regime that, beyond to generate profitability and growth that turns into stability, will bet on spending savings.