Proposed Fee Cap for Mexican Pension System Could Bring Challenges
On Sept. 25, 2020, a Mexican Pension System (SAR) reform bill was submitted to the congress containing enhancements previously proposed by Mexico’s president.
The bill also proposes a cap on management fees charged by pension fund managers (Afores) that would reduce annual fees by over 40%. The SAR continues to undergo changes aimed at improving the projected adequacy of pension savings.
The target-date fund framework aims to improve investment returns. Contributions would increase to 15% under the current reform bill, and the Afores had already committed to a gradual reduction in fees.
The combination of these factors significantly improves the probability of achieving the pension system’s goals. However, the recently proposed fee cap may introduce challenges that could delay the full realization of these improvements.
The proposed cap on fees is intended to improve salary replacement rates, as the cost savings from lower management fees would accrue to pension beneficiaries. However, per the 2014 International Organization of Pension Supervisors article, “Update Work on Fees and Charges,” the CONSAR was concerned that “imposing a fee cap may force the exit of those pension providers that have not yet reached economies of scale.”
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