Mexican President AMLO Announces Major Pension Reform, Boosts Employer Rate
Posted on 07/23/2020
Mexico President Andrés Manuel López Obrador (AMLO) revealed a long-anticipated reform to the Mexican pension system that will be sent to Congress (Congreso de la Unión) for revision and approval. The Mexican pension market is estimated to be at over US$ 260 billion, smaller than the California Public Employees Retirement System (CalPERS).
The reform plans to increase the amount that employers pay towards pensions to 13.87% from the current 5.15%, a gradual increment that will take place in a time span of 8 years, bringing up the total monthly contributions to 15%. Worker contributions remain unchanged, as well as the retirement age, currently at 60 years old.
Under the new plan, the minimum working period in order to receive a pension will decrease from 1,250 weeks (25 years) to 750 weeks (15 years). This modification addresses the reality that the majority of workers are not able to reach the 25-year minimum in the formal sector, as they might have rotated between the informal and formal sector during their working life. Consequently, only 34% of Mexicans have their pension guaranteed, and Finance Minister Arturo Herrera expects this number to rise to 82% with the reform.
Herrera also announced at the press conference that the reform would lead to a boost of 40% in pension benefits for the average worker. Under the current pension system, retirees receive on average around 30% of their last salary. The bill aims to provide minimum salary workers with 103% of their salary upon retirement, and 54% to workers that earn five times the minimum salary. The reform also touches on afores, as Arturo Herrera mentioned that their commission fees would take a gradual decrease and that there would be changes to their investment regimes, allowing them to benefit from higher-return investments.
