Mexican Congress one step away from approving controversial pension fund

38 days before the presidential elections, the official majority of the Mexican Congress is one step away from approving a controversial reform promoted by the president Andrés Manuel López Obrador to create a public fund that will complement part of the payments that the government must make to improve retirements in the coming years.

The so-called Pension Fund for Wellbeing, which the Chamber of Deputies voted this week, and which the Senate will discuss on Thursday, still has some issues to be defined regarding its sources of financing and who will be the workers over 65 years of age who will receive it.

López Obrador’s decision to advance the discussion to this month and to separate it from the package of constitutional reforms that he presented in February and that will be debated after the elections, has fueled the doubts of analysts who see it more as a government action to shake the electoral atmosphere with a very sensitive issue for Mexicans. For the moment, specialists rule out that the new fund will generate any changes in the retirement savings system.

Below, we address some of the key aspects of what has been approved so far:

What role will the fund play?

The new fund will be used to complement the contributions that the government must make to ensure that private and public workers over 65 years of age receive a pension equal to their last salary at the time of their retirement, as long as it does not exceed the limit of 16,777 pesos (about 986 dollars), which is equivalent to the average monthly salary recorded this year. The pension cap will be updated annually in accordance with inflation.

The workers covered by the scheme are those who are under the regime in force since 1997 of individual retirement accounts managed by the Retirement Fund Administrators (Afores).

President López Obrador affirmed that the state fund will benefit “26, 28 million workers”, but analysts expressed doubts about that figure.

Jesús Carrillo, coordinator of economic research at the Mexican Institute for Competitiveness (IMCO), told AP that as long as the authorities do not determine how many weeks of contributions will be required to have access to the improved pensions, the number of beneficiaries will not be able to be quantified. .

How will the fund be financed?

Most of the fund’s resources will come from inactive savings that are in the Afores’ individual retirement account system that have not been claimed by people aged 70 and older. The government estimates that these funds reach 40,000 million pesos (about US$ 2,352 million).

The reform also established that the Social Security and Social Security and Services institutes of public employees and the National Housing Fund for Workers must transfer to the new fund the resources from retirement accounts, old age unemployment, housing and old age of non-active workers aged 70 who have not claimed their savings.

Likewise, they will be allocated to the fund 25% from the profits generated by public companies managed by the Armed Forces such as the Mexicana de Aviación airline and the so-called Mayan Train that operates in the south of the country; he 75% of the resources obtained from the operations of the Institute to Return What was Stolen to the People and what is generated by the liquidation of the National Financial Institution for Agricultural, Rural, Forestry and Fisheries Development and the sale of the lands of the National Fund for the Promotion of Tourism.

All resources will go to a public trust that will be established by the Ministry of Finance and whose trustee will be the Bank of Mexico.

What are inactive accounts?

One of the points that has generated the most controversy in the reform has been the government’s decision to transfer the inactive savings accounts that are in the Afores to the new public fund.

According to Mexican law, inactive accounts are those “that have not had movement due to deposits of fees and contributions during the period of one calendar year counted from the last deposit made.

Currently, the law provides that if after 10 years a person does not claim their pension, the Afores must return that money to Social Security, which is the custodian of these resources.

Is the fund sustainable over time?

The analysts consulted by the AP agreed that as long as the number of beneficiaries and how the fund resources will be allocated for compensation are not announced, it will be difficult to know if the financing sources announced by the government will be sufficient to cover the compensation payments. retirements in the coming years.

The opposition has already announced that it will go to the Supreme Court of Justice of the Nation to request the invalidation of the reform that they claim is unconstitutional, which presages a legal battle that could stop the activation of the state fund.

What impact will it have on the pension system?

Representatives of the financial sector and analysts have ruled out that the new fund could significantly affect the Afores or generate drastic changes in Mexico’s retirement savings system.

In this regard, Rolando Silva, member of the National Social Security Technical Committee of the Mexican Institute of Finance Executives, stated that the Afores will receive an impact because they will lose “a considerable number of captive customers” that they had in inactive accounts that generated a commission. It is estimated that inactive accounts do not represent even the 1% of the resources currently managed in the Afore.

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