Revamping Mexican Pensions

Apr 1, 2007

Afores need more options, says Oscar Medina Mora, CEO of Banamex Investment Management, Mexico's largest pension fund, with $12.5 billion under management.

What are the challenges facing Mexico's private pension system?
The defined contribution system in relation to the pay as you go system is a great improvement because the social cost, meaning the cost to the whole country, has diminished. That is evidenced by the fact that the government is proposing to get the public employees (ISSSTE) pensions system managed along the lines of the Afores, for private sector workers. But there are several challenges facing the Afore system if it is to fulfill its objective of creating retirement savings equal to 70% of a retired workers last wage.
Currently, workers contributions amount to about 6.5% of each salary. In other countries that is substantially larger, 11% in Chile and 19% in Germany. There is an additional 5% contributed to the National Workers Housing Fund, which workers can choose to allocate to their retirement fund, if they do not buy a...

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