Colombia's government sends pension reform proposal to Congress to expand coverage

By Nelson Bocanegra

BOGOTA (Reuters) -Colombia's government sent a pension reform bill to Congress on Wednesday that would strengthen the state pensions administrator in an effort to give benefits to more people, although some Wall Street bank analysts say it could pose a risk to capital markets and public finances.

The bill is one of a raft of social reforms pushed by the government of leftist President Gustavo Petro and follows hot on the heels of other health and labor reform proposals.

Petro's coalition has a majority in Congress, though the health reform has caused friction with some legislative allies and led to the exit of one member of Petro's cabinet.

The pensions bill would enshrine a range of contribution regimes depending on income and contains a proposal to guarantee a basic monthly income of 223,000 Colombian pesos ($46) for people who have not managed to secure a pension.

"It is time for a reform if we want to make (the pension system) sustainable," Petro told the Senate, adding the current system struggles to meet monthly payments.

"This isn't about annulling markets...it's about again building the thesis that without the state it is not possible to guarantee rights," he added.

Just one in four Colombians currently reaches the minimum number of working weeks in formal employment required to receive a pension, the government has said.

Under the bill, workers earning up to three times the minimum wage - about $724 per month - would have to pay their contributions into state pension fund Colpensiones.

People earning more than that could pay contributions on amounts exceeding the three-times minimum wage to a private fund, while those earning more than four times the minimum wage would be required to contribute to a so-called solidarity fund.

Some analysts say the reform will affect government financing because a significant flow of money would migrate from private funds - the second-largest holders of Colombia's internal public debt - to Colpensiones.

As of the end of February, private funds had 116.2 trillion pesos ($24.2 billion) invested in TES Treasury bonds, equivalent to 25% of the Andean country's total internal debt.

TES bonds are the second most important source of financing for public spending after taxes.

"An aggressive pension reform bill, which could divert considerable flows from (private funds), constitutes a significant fiscal risk for the government's local financing plan," bank Goldman Sachs said in a note.

A savings fund holding an initial 20% of contributions received by Colpensiones can be used if needed to shore up the system when payouts to certain contributors rise above 1% of GDP, the president's office said in a statement on Wednesday.

"The creation of this system will avoid impacts in the capital market and on acquisitions of TES," it added.

The reform would keep the retirement age at 57 for women and 62 for men.

($1 = 4,792.51 Colombian pesos)

(Reporting by Nelson Bocanegra; writing by Oliver Griffin; editing by Leslie Adler and Jonathan Oatis)