Subsidies in the Colombian public defined benefit pension scheme. Parametric analysis and policy lessons ¿A quiénes y cuánto subsidia el régimen pensional de prima media en Colombia? Análisis paramétrico y lecciones de política

Abstract

This paper analyses the benefits provided by Colpensiones (Colombian Average Premium with Defined Benefit Solidarity Public System Operator) to this system members. We present a set of simulation results that were ran following the existing regulation and commonly accepted actuarially assumptions from which we conclude that all pensions recognized by Colpensiones could be subsidized. We also estimate that when simulations followed the same returns that the affiliates’ savings get within the Colombian Individual Saving with Defined Benefit Private System (RAIS), the implicit subsidies for the higher pensions provided by Colpensiones disappear. In addition, we found that the same result could be achieved through some reasonable parametric adjustments. Finally, on the basis of the above we discuss on the existing policies regarding the pension system