Mexican government announces reform to strengthen pension system

The Government of Mexico announced an initiative that would reform the Social Security Law, with the aim of "more than doubling the percentage of workers who reach a pension" and thus cover the basic expenses of older adults in the country.

Mexican pension reform explainer. Image: PickPik
Mexican pension reform explainer. Image: PickPik

The Government proposes the reform in a 'tripartite' way between workers, employers and the State. Here are some keys to understanding what the Mexican pension reform is all about.

According to the Government in a statement, "it is a fact that the current tripartite contribution, which amounts to 6.5% of the salary plus the social contribution made by the State, is not enough to cover a decent pension for workers".

For this reason, the reform proposed by the Executive seeks to increase the percentage of the salary destined to retirement from 6.5 to 15% of the salary. This increase will be made gradually over 8 years. The contribution made by the employer will absorb the increase, from 5.15% currently in force to 13.875%.

Since many Mexicans do informal work, this "makes it difficult for a large majority of workers to achieve the seniority necessary to obtain the right to a guaranteed pension," according to the government. As a result, the reform proposes reducing the number of weeks required to achieve a pension from 1,250 to 750 weeks. This requirement would be gradually raised over 10 years to 1,000 weeks.

The current average value of the pension is 3,289 pesos, or 80 per cent of a minimum wage. This reform would increase the average value to 4,345 pesos, granted "on the basis of age, weeks of contribution and the basic wage of contribution". According to the statement, this could reach "up to 220% of the minimum wage currently in force".

"With these actions, it is projected that the replacement rate, the percentage represented by the pension with respect to the last salary received by the worker before retirement, will rise on average 40% from its current level," the Government explains.

Workers will be able to "combine life annuity schemes with programmed withdrawals, [...] make withdrawals from their voluntary savings without requiring a waiting period (currently six months) and eliminate the prescription of rights so that individual account holders or their beneficiaries can recover the remaining balance in the account even after 10 years of obtaining the right to the pension," the Mexican government said in the statement.