Pension Reform in Mexico: Guiding Principles for Creating a Sustainable and Balanced System for Private Sector Workers
By Guillermo Zamarripa & Gustavo A. Del Angel
From 1995 to 1997, Mexico engaged in a major pension reform. With that change, the system migrated from a pay as you go defined benefit model to a defined contribution one. The pension system reform permitted a sustained increase of financial savings in Mexico from 1999 to 2019. Savings managed by the pension funds -the Afores1- reached 16.6% of GDP as of the end of 2019. However, after more than two decades of operation, an evaluation of the behavior of workers and the rules of the system reveal that there is an urgent need for changes to improve it. The main problems today can be attributed, first to a low rate of contribution to the individual accounts. And second, to the high informality in the labor market in Mexico, reducing the participation of workers. These problems are not related to the defined contribution model nor to the private pension fund managers’ performance.
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