OECD Reviews of Pension Systems: Mexico (eBook)

Foreword 5
The defined contribution system of individual accounts introduced in the 1990s has been successful 5
However, it needs important improvements 5
The transition process from the old to the new system needs to be smoothed to avoid disillusionment and opposition to the new system 6
Contributions to the system have to increase 6
Improve the old-age safety net by integrating and expanding it 6
Eliminate the fragmentation of the system 7
Table of contents 9
Acronyms and abbreviations 13
Executive summary 15
Main findings 15
Main recommendations 17
Chapter 1. Introduction to the Review of the Mexican pension system 21
1.1. Objectives of the review 22
1.2 Historical background to the changes experienced by the Mexican pension system since the 1990s 24
1.3. Structure of the review 25
References 27
Chapter 2. The Mexican pension system today 29
2.1. Overview of the Mexican pension system 30
2.2. Non-contributory pension for the elderly 31
2.3. The Retirement Savings System (SAR) 31
2.4. Special pension schemes 36
2.5. Voluntary pension savings 37
Notes 38
Chapter 3. The public pension system in Mexico 
39 
3.1. Introduction 40
3.2. Age parameters and contribution periods 42
3.3. Pension benefits 43
3.4. Financial pressure will grow 50
3.5. Deep-seated fragmentation 52
3.6. Minimum social benefits for the elderly 53
3.7. Policy options to improve the public pension provision 62
Notes 64
References 65
Chapter 4. Smoothing the transition period and increasing pension contributions in Mexico 67
4.1. Sharp falls in replacement rates are expected after the last transitional worker retires 68
4.2. Low coverage rates and contribution densities compound the problem 74
4.3. Voluntary contribution levels are not sufficient to offset the fall in replacement rates 78
4.4. The tax treatment of retirement savings fails to provide the appropriate incentives to make additional voluntary contributions 81
4.5. Low pension awareness 85
4.6. Proposals to smooth-out the transition period and to increase coverage, contribution levels and contribution periods 88
Notes 107
References 110
Chapter 5. Improving the design of the accumulation phase in the Mexican pension system 113
5.1. The current investment regime of SIEFORE may not be optimal 114
5.2. Fees charged by AFORE are still high when comparing with other countries despite current mechanisms to foster competition 124
5.3. Robust risk-based supervision but AFORE’s corporate governance could be improved 131
5.4 Proposals to improve the design of the accumulation phase 134
Notes 141
References 141
Chapter 6. Improving the design of the pay-out phase in the Mexican pension system 143
6.1. Modalities of allocating assets accumulated 144
6.2. A sluggish annuity market 148
6.3. Assessment of the potential longevity risk in standard mortality tables used by pension funds and annuity providers 154
6.4. Proposals to improve the design of the pay-out phase 162
Notes 165
References 166