by Ana Maria Ruiz-Brown and Kelly Simmons
New changes in the laws governing Mexico's retirement savings system have begun to privatize the country's $4 billion pension system and encourage citizens to save for the future. It is hoped that the 1996 changes will mean a more equitable system of retirement and offer better pensions for workers. The new system, based on a similar one implemented in Chile in the early 1980s, allows workers to decide which retirement fund to invest in and to voluntarily increase the amount of retirement funds they deposit, makes pensions dependent upon individual savings above a minimum pension guaranteed by the government, and enables workers to plan for their retirement better. The government and employers will continue to contribute to each employee's account. Under the old system the government invested all retirement funds, workers received the same pension amount regardless of how many years they had worked, workers' pensions benefits were based on increments of the official minimum salary, and workers had no way of increasing their deposits or influencing decisions about investments. In addition, under the old system, a worker who stopped working before the specified age of retirement lost all pension benefits they had paid into the system.
Only workers covered by the current social security system (Instituto Mexicano de Seguro Social, IMSS) will be eligible for the new privatized system. In Ciudad Juárez about 300,000 employees are registered with IMSS and it is estimated that about 10 million workers nation wide will be eligible for the new system. The new system won't have any effect on current retirees. They will keep receiving their pension and medical assistance.
The National Retirement Savings Commission (Comision Nacional de Sistema de Ahorro para el Retiro, ConSAR) has approved twelve different firms, both Mexican and foreign, to administer retirement funds (Administradoras de Fondos para el Retiro, AFORES) and the advertising effort to gain new accounts is already underway. Part of the regulations governing Afores administrators provides authorization to charge a commission for handling workers' pension accounts. The 12 companies that have been approved are Bancomer, Banamex, Garante (a consortium of Banco Serfin, Citibank, and AFP Habitat de Chile), Bital, Previnter ( a consortium of BankBoston, Scotiabank, Inverlat and AIG), Genesis, Inbursa, Tepeyac, Bancrecer-Dresdner, Profuturo GNP, Santander-Mexicano and Solida-Banorte. Already the companies are targeting maquila workers in their efforts to gain new accounts, according to a report in El Norte. The maquila market in Ciudad Juarez alone represents approximately 180,000 eligible workers.
The reasons given for changing to the new privatized Afores system is due in part to undercapitalization of the old IMSS system. Workers are living longer and the numbers of retirees are increasing, putting a greater strain on the government's resources. The life expectancy of a worker in Mexico has increased from 54 years to 72 years. Under the old system it took 5 workers paying in to the system to finance one retiree's pension. With the overall decrease in the numbers of new workers and the increase in retirees, the system was headed for a financial crisis. It is predicted that the new system will also improve the availability of capital and this in turn will help create more jobs, boosting the country's economy. It is estimated that in 30 years under the new system, $15 to $20 billion dollars will be generated in Mexico's economy. In Chile, where the system has been in operation for 15 years, investments in the retirement funds represent 45 percent of the Gross Domestic Product.
Sources: Diario de Juarez, El Norte, El Paso Times