The Colombian Pension System after the Reform of 1994: An Evaluation

Abstract

The Colombian pension reform of 1994 introduced a privately administered defined-contribution programme, which coexists with a reformed public defined-benefit programme. This paper gives an overview of the Colombian pension system and evaluates its performance using four criteria: (1) effectiveness, (2) efficiency, (3) equity, and (4) sustainability, finding evidence of severe shortcomings. Both effective coverage and benefit levels are low, costs in the private programme are high, and there is evidence that insured persons are not fully informed about the actual system. The system is inequitable and the uninsured population bears part of the financial burden. The public programme is financially not sustainable. A current reform proposal from the Colombian government addresses only part of the problem.