The current social security system was introduced in 1994. Under such system, workers can choose between the public pay-as-you-go program and an individual account managed by a pension fund management company (“AFP”). Workers may switch from one system to the other every 5 years up to the last 10 years before retirement. They may also change from one AFP to another every 6 months. The current retirement age is of 60 for men and 55 for women, but will rise gradually to 62 and 57 respectively, beginning in 2014.
On July 1st 2010 a new regulation revising the admitted investments of the individual account’s funds entered into force. Under the new regulation, as of February 2011 each AFP is required to offer three types of funds with different degrees of risk - conservative, moderate, and high - instead of the one type of fund with restricted investments that AFP currently offer. In mid-2009 AFPs invested almost half of the funds in government debt, nearly one-quarter in stocks, about one-tenth in foreign instruments and the balance in financial institutions and mutual funds. This will become the moderate fund.
As of January 2011, account holders will be able to choose one of the three types of funds for their individual accounts. Those account holders that do not make a choice will be automatically assigned to the moderate fund. Account holders will be allowed to change from one type of fund to another every 6 months within the same AFP.
Moreover, according to the "rule of convergence" a certain percentage of an older worker’s individual account will have to be invested in the conservative fund. The percentage is based on age and sex and ranges from 20% for women at age 52 and men at age 57 and 100% for women aged 56 or older and men aged 61 or older.
Sources: "Multifondos: los Casos de Chile, México y Perú," FIAP, diciembre de 2007; AIOS Boletín Estadístico, junio 2009; "Colombia," International Update, August 2009, U.S. Social Security Administration; Administradoras de Fondos de Pensión AFP deberán garantizar transparencia en multifondos, Portafolio, el 11 de abril de 2010; Decreto Número 2373, el 1 de Julio de 2010; "Se Publica Esquema Operativo de los Multifondos en Colombia," FIAP, agosto 2010.