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Article | Global News Briefs

Mexico: New retirement pension guarantee and other pending reforms

By Pedro Trejo | June 28, 2024

The level of state pensions for many current and future retirees in Mexico will increase substantially, which along with other proposed reforms may have impacts on employer pay and benefit programs.
Retirement|Health and Benefits|Ukupne nagrade
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Employer Action Code: Act

Congress has approved legislation to guarantee that an individual’s state retirement monthly pension is at least 100% of his or her final monthly salary, up to a cap. This reform is part of a wide-ranging set of proposals that were presented to Congress by outgoing President Obrador in March, shortly before the national elections on June 2, 2024. The pension reform was approved on May 1, just a month before President Obrador's protégé, Claudia Sheinbaum, won a landslide victory to become the next president. Sheinbaum will be inaugurated on October 1. Other proposals, which will require constitutional amendment, are pending. The coalition government (the Seguimos Haciendo Historia alliance) also increased its number of seats in both houses of Congress, winning enough seats to enable it to amend the Constitution.

Key details

Under the new pension legislation:

  • The new guarantee relates to retirement pensions generated by individuals’ social security defined contribution accounts managed by private retirement fund administrators (Administradoras de Fondos para el Retiro – AFOREs). The AFORE program was established in 1997.
  • Starting on July 1, 2024, pensioners age 65 or older whose AFORE monthly pension is less than their final monthly salary will receive a monthly benefit that tops up their AFORE pension to 100% of their final salary; however, no top-up is payable if the AFORE pension is equal to or greater than the average monthly salary of active social security members in the year prior, adjusted for estimated current year inflation — 16,778 Mexican pesos (Mex$) in 2024. 
  • A newly established Welfare Pension Fund (Fondo de Pensiones para el Bienestar) will fund the top-ups, initially financed by the sale of certain state assets and by various other state resources. The top-ups will not be funded by any additional employer or employee contributions.

Other proposals affecting employers (all of which would involve amending the Constitution) include:

  • Compensation: Ensure that the minimum wage keeps up with inflation. It has been increased annually by 18% on average since 2019, under the administration’s goal of doubling the minimum wage during its term in office (ending October 1, 2024).
  • Healthcare: Guarantee comprehensive, universal and free medical care — including examinations, surgery and medications — for all residents.
  • Housing: Require that employers engaged in agricultural, industrial or mining activities (and potentially other industries) provide their employees with access to “comfortable and hygienic housing.” In addition, the government would subsidize government housing owned by INFONAVIT (Instituto del Fondo Nacional de la Vivienda para los Trabajadores), the national housing fund, for employees contributing to the program for a year or more.

Employer implications

Employers should consider how the approved pension top-ups and the pending proposals may affect their pay and benefit programs. Based on OECD projections, the AFORE pension (before top-up) will replace only 15.2% of pre-retirement pay for an employee now entering the system whose pay matches the national average and who has a fully insured working career. Including mandatory benefits, the replacement rate rises to 55.5%. According to Instituto Mexicano del Seguro Social 2022 data, 71% of retirees receive a social security pension of under Mex$5,000 per month. So there is a clear need for additional sources of retirement income. The proposed improvements in rates of pay, public healthcare and housing are supported by most of the political spectrum; the challenges are meeting the costs and identifying the funding sources, which are only briefly addressed in the proposals.

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Pedro Trejo

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