The pension debate in Chile finds an echo in Mexico

The proposal of the elected president of Chile, the leftist Gabriel Boric, that the private pension scheme disappear has found an echo in Mexico, which also has an individually funded system.

The Retirement Fund Administrators (Afore) of Mexico have an “intimate resemblance” with the Pension Fund Administrators (AFP) that Boric promises to disappear, said Gustavo Leal, an expert researcher on pensions at the National Autonomous University of Mexico (UNAM ).

“They are very similar because the Mexican technocracy of Ernesto Zedillo (president from 1994-2000) was the one that made a copy almost in traces in Mexico of the privatization of Augusto Pinochet’s pension system,” said Leal.

Mexico’s lag

An average formal worker in Mexico receives less than 30% of his salary when he retires, below all the countries of the Organization for Economic Cooperation and Development (OECD), including Chile, Brazil and Argentina, according to a report by the Bank of Mexico (Banxico) from 2021.

Against this background, last January the first reform of the Retirement Savings System (SAR) came into force since 1997 with the aim of increasing the income of retirees by 40%.

The reform has the goal of increasing the coverage of workers with a guaranteed pension from 34% to 82% and raising the number of active Mexicans entitled to a pension from 56% to 97%, according to the Ministry of Finance and Public Credit ( SHCP).

This is because the new regulation reduces the requirement of 1,250 weeks (25 years) of contributions to only 750 weeks (15 years) and increases the total contribution to the pension from 6.5% to 15% without increasing the workers’ quota.

But the reform “is insufficient because it preserves the model that Boric wants to replace, that is, the individually funded system that completely breaks the solidarity scheme”, considered Professor Leal.

“In a collusion with the business sector and with an intensely corporate segment of the unionism, the president gave at least ten more years of oxygen to the system equivalent to the AFPs,” he said.

The president of the Business Coordinating Council (CCE), Carlos Salazar Lomelín, has defended the reform, of which he is considered the main promoter, because it will guarantee a decent pension.

In his press conference at the end of the year, the leader of the private sector leadership recalled that the employer’s contribution rises from 5.15% to 13.87% gradually until 2030, while the contribution of workers and the Government will remain practically without changes.

For this reason, he asserted that “where the pension crisis looms are in the pensions that the government has to give”, in particular in the Federal Electricity Commission (CFE), Petróleos Mexicanos (Pemex), teachers and federal bureaucrats, state and municipal.

“The government has not fixed its pension problem either, even though we have explained the country’s pension situation,” he said.

Contagion effect?

The president of Mexico, Andrés Manuel López Obrador, has expressed his admiration for Boric and his ideas on several occasions in his morning press conferences.

“Expressing our satisfaction, our joy, cannot be hidden,” he said after the Chilean’s victory.

But Professor Leal regretted that the Mexican president has rejected a profound reform to the pension system such as the one proposed by Boric.

The leftist Labor Party (PT), an ally of López Obrador, has proposed several times in Congress that the Afore be eliminated and that the state administer the pensions.

However, although López Obrador assumes himself on the left, the president has sought to project an image of austerity and fiscal responsibility.

“He did not dare to try another model, even though we insisted in countless media that there was the possibility of making a reform in the style of the one Boric is putting on the table,” said Leal.