Study highlights Mexico pension disparities, official calls for action

By
Thursday, November 30, 2017

Over 60% of Mexican workers have no access to pensions and, of those that do, gross disparities exist between pensions received by private sector employees and public sector bureaucrats, who make up to 30 times more on average, according to a new study from Mexican competitiveness institute IMCO.

The report, a 2017 survey of competitiveness in Mexico, highlights two critical problem areas within the nation's pension system, building on arguments presented Tuesday to a senate subcommittee by national retirement administration (Consar) president Carlos Ramírez, urging the body to carry out pension reforms without delay.

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"We have to be clear with Mexicans about what they can expect with their Afore [individual retirement account]," Ramírez was quoted as saying by local daily El Universal, adding that while Mexico has succeeded in raising retirement savings over the last 20 years, the result is insufficient to meet the demands of the nation in the coming years.

In 2021, the retirement system will see the first big wave of workers hired after the 1997 pension reforms and contributing under the Afore framework. Ramírez noted that workers currently contributing to Afores could expect to receive pension benefits equivalent to only 30% of their final salary.

He urged senators on the social security senate committee to take action to reduce commissions on Afores from the current average of 1.03%.

STUDY HIGHLIGHTS

IMCO highlighted that the high rate of informal employment - a tendency that has failed to abate in recent years despite efforts to increase formality through structural reforms - means that 60% of workers are excluded de facto from the pension system.

The second problem highlighted in the report noted that contributions going into Afores by workers in the private sector social security system (IMSS) are far too low.

The third issue involves hundreds of pension frameworks existing across the public sector, many spawned out of deals struck with unions to provide for a gradual approach for the transition to individual retirement accounts.

"There is an actuarial liability of over 120% of GDP with hundreds of public worker pension systems, which - if not reformed - will undermine national and state finances," read the executive report with the study.

Those systems have also resulted in huge disparities, with retired workers in the public worker social security system (ISSSTE) making 11,500 pesos (US$617) per month in average pension benefits, compared to private sector employees who entered the IMSS before the pension reforms making 4,500 per month. These figures, the latest available, were reported for 2013 but adjusted to 2016 pesos.

Energy sector employees fare even better, with federal electricity commission (CFE) employees earning an average of 33,400 pesos per month in benefits and state oil company Pemex retirees making 36,200 pesos. The most extreme disparity comes with employees of federal judiciary agency (CJF) who collected an average 69,500 pesos per month in benefits.

The variation was even wider for those employees who reported pension benefits under the post-1997 Afore system, who reported average benefits of only 2,300 pesos per month.

The study also highlighted the following actions to repair the system:

  • Reduce the tax burden on employees earning less than 10,298 pesos per month to encourage formalization of the economy and provide 15.6mn private sector workers with an additional 5.5% to 10.5% in monthly take-home income.
  • Engineer a multi-partisan political agreement to carry out comprehensive structural social security reforms that universalize benefits, correct shortfalls and put limits on fiscal deficits tied to pensions.
  • Raise awareness of the national pension crises and the adverse impact from the aging of the population, as well the drain on public funds in the coming years.