Perfiles nacionales

México

Perfiles nacionales

México

Pensiones complementarias (obligatorias)

Updated: 31 diciembre 2022
2013: Income Tax Law (last amended on December 11, 2021); regulates tax deductions and benefits applicable to voluntary savings accounts.
2007: Law of the Institute for Security and Social Services for State Workers (ISSSTE Law) (last amended on November 22, 2021); regulates coverage, contributions to the defined contribution mandatory pension system for Federal employees, and provides transition reforms to the old defined benefit system.
1999: Law for the Protection and Defence of Users of Financial Services (last amended on March 9, 2018); creates the National Commission for the Protection and Defence of Users of Financial Services (Comisión Nacional para la Defensa de los Usuarios de Servicios Financieros - CONDUSEF) to respond and resolve any inquiries or claims that are presented to it, to conduct the necessary conciliation procedures and to offer guidance and legal advice to users in any dispute brought to court by them against financial institutions.
1996: Rules of the Retirement Savings System Law (last amended on February 25, 2020); specifies some of the requirements defined in the Retirement Savings System Law.
1996: Retirement Savings System Law (last amended on December 16, 2020); defines the structure and function of the National Commission for the Retirement Savings System (Comisión Nacional del Sistema de Ahorro para el Retiro - CONSAR), institution that regulates and supervises the Retirement Funds Managers (Administradoras de Fondos para el Retiro - AFORE) and the Investment Funds Specialized in Retirement Savings (Sociedades de Inversión Especializadas de Fondos para el Retiro - SIEFORES).
1995: Social Security Law or IMSS Law (entry into force on 1997, last amended on May 18, 2022); establishes the mandatory defined contribution pension scheme for private-sector employees, regulates coverage, contributions and the relationship between the old publicly-managed social security scheme and the mandatory private pension scheme.
1972: Law of the National Workers Housing Fund Institute (last amended on May 18, 2022); regulates the National Workers Housing Fund Institute. The purpose of this agency is to administer the resources of the National Housing Fund in order to establish and operate a mortgage system for workers to obtain accessible and sufficient lending to purchase a house, as well as to build, repair, expand and improve their homes or pay off the liabilities taken on performing such actions.
Additionally, CONSAR specifies some of the secondary regulations concerning: operational aspects of AFORE, financial statements of the SIERFORES, investment regime of the SIEFORES, investment indicators, disclosure of information to the public, AFOREs' sales force, fees charged, regulatory controllers, among other issues.
Types of Schemes (1)
Mexico implemented a fully-funded pension system for private-sector employees in 1997. As well as other Latin American and Eastern Europe countries, Mexico switched from a pay-as-you-go (PAYG), defined-benefit (DB) system to a defined-contribution (DC) system based on mandatory, individual accounts, with the feature that the retirement funds are managed by the private firms (AFOREs). In 2007, the pension plan for public-sector employees also implemented a similar reform.
Mexico's three-pillar pension system is described as follows:
Pillar 1
The pension for the elderly (Pensión para el Bienestar de las Personas Adultas Mayores) is a universal non-contributory safety net program paid by the annual federal budget. It covers people aged 65 years and older with a bi-monthly amount of MXN3,850 and, in year 2024 it will be MXN$6,000 every two months.
Pillar 2
• Retirement Savings System (SAR), mandatory defined contribution fully funded system with individual accounts: employees affiliated to the IMSS (private sector) or the ISSSTE (public sector).
• Defined benefit (DB): transitional workers, special pension schemes for certain public-sector employees, governments of states, municipalities, and state universities.
Pillar 3
• Voluntary Savings
• Individual and occupational voluntary pension plans.
The main component of the Mexican pension system is the Retirement Savings System (SAR); this defined contribution system comprises two social security schemes:
1. Mandatory private sector system: The Mexican Institute of Social Security (Instituto Mexicano del Seguro Social - IMSS) and the National Workers Housing Fund Institute (Instituto del Fondo Nacional de la Vivienda para los Trabajadores - INFONAVIT) provide health, pension and housing services respectively for private-sector workers.
2. Mandatory public sector system: The Institute for Security and Social Services for State Workers (Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado - ISSSTE) and the Housing Fund of the Institute for Security and Social Services for State Workers (Fondo para la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado - FOVISSSTE) provide health, pension and housing services respectively for public-sector workers.
Formal sector employees must be enrolled to one of the abovementioned institutions (i.e., IMSS or ISSSTE). This enrolment makes the formal-sector employees eligible to select any AFORE of their choice. Additionally, the AFORE scheme is open to all eligible people who enrol voluntarily to the system.
The individual pension account is composed on four elements: the bi-monthly worker-employer contributions for retirement, old age, and severance at old age; the Federal Government's contributions; the voluntary contributions made by the worker and/or his or her employer, and the returns on the total of the previous contributions. In addition, the individual account keeps accounting information of the employer contributions to the housing sub-account.
The AFORES charge fees, which are deducted from the workers' personal accounts. In case of marriage or temporary unemployment, workers may make partial withdrawals from their individual accounts. In case of withdrawal, the number of weeks is decreased depending on the withdrawn amount, and they can be recovered if the amount is deposited again in the individual account.
Under both schemes, each individual retirement account is composed of three compulsory sub-accounts:
a) The retirement sub-account (Subcuenta de retiro, Cesantía en Edad Avanzada y Vejez, RCV): In this sub-account, workers, employers and the government make mandatory contributions to cover retirement insurance, severance at old-age and old-age;
b) Housing sub-account. This sub-account comprises the mandatory contributions that employers make to the housing fund managed by INFONAVIT or FOVISSSTE, on behalf of their workers. In case the worker obtains a loan from the housing fund institute, the resources in the sub-account will be applied to pay the debt; if the worker does not take out a loan during his/her working life, the housing institute will transfer to the AFORE the resources to supplement the employee´s pension;
c) Voluntary contributions sub-account. In this sub-account, the worker or employer freely decides to contribute in order to increase the balance in the employee's individual account.
Any employee (in the formal or informal sector) can make four types of voluntary contributions into their individual accounts as follows:
1) Short-term voluntary contributions. The worker makes a contribution and he/she has the option to withdraw partially or entirely the balance account of his/her voluntary contributions before his/her retirement. The minimum period to be hold these contributions in the individual account is from two to six months after being made, depending on the AFORE;
2) Complementary contributions to individual retirement accounts. These contributions can only be withdrawn at retirement as a lump sum or can be supplemented to worker's pension, and may be deducted from income tax up to five times the minimum annual salary or 10% of the annual income.
3) Long-term voluntary contributions with a long-term investment perspective. These contributions can only be withdrawn at the retirement age or in the event or disability or incapacity for remunerated work. They may be deducted from taxable income on the same way as the complementary retirement contributions;
4) Contributions to special "savings for retirement" accounts. These contributions allow the deferral of tax payments until their withdrawal, which can be made after at least five years have elapsed from the date of the voluntary contribution. The maximum annual amount of contributions qualifying for tax exemption is MXN $152,000.

Private-sector employees affiliated to the IMSS

This Defined Contribution (DC) scheme has existed since July 1997 after the amendment of the Social Security Law (2). The scheme applies to the private sector workers who are affiliated to the IMSS. Vested liabilities were recognised to the "transitional workers", therefore, the transitional worker (who entered before 1 July 1997) may choose between the past benefit (DB) and the new DC benefit, upon retirement.
The government guarantees that all members who contribute 1,000 weeks or more weeks to the system will retire with at least a lifetime annuity equal to the guaranteed pension mentioned in the "Cuarto Transitorio" of the Social Security Law amended as of 16 December 2020. Due to the approval of the pension reform in December 2020, it is mandated that since January 2021 the number of weeks decreased to 750, and it will be increasing 25 weeks per year, until 2031 which will be maintained in 1,000 weeks, to allow more employees to obtain the guaranteed pension.
The guaranteed pension, to both transitional and "new-generation" workers, is provided by the Federal government in the event that the value of the worker's capitalized savings in his/her individual retirement account balance is not sufficient to finance the minimum pension. In this case, the Federal government contribution will be equal to the difference between the guaranteed pension and the funds accumulated in employee´s individual retirement account.
Since the reform of 1997, the benefits under the new system fall into two groups: benefits to new-generation workers and benefits to transitional employees.
New workers are defined as who started working and making contributions to the system from 1 July 1997. Benefits consist of the accumulated balances in their individual retirement accounts managed by the AFOREs, plus any remaining balance in the housing sub-account managed by INFONAVIT, or the guaranteed minimum pension under the new system. At retirement, workers will choose between programmed withdrawals provided by the AFORE of their choice and an annuity provided by an insurance company, or, as established in the reformed Social Security Law, a mix of both.
Private-sector workers affiliated to the IMSS have the possibility to change AFORE under certain circumstances as specified by the Mexican pension regulator (CONSAR). If a worker does not choose an AFORE, the SAR Law stipulates that his/her individual account must be assigned, on a temporary basis, to one of the AFORE that has achieved the largest net returns over a predetermined period. These workers are known as "assigned workers" to distinguish them from the rest of the workers affiliated to the IMSS that have made an active choice of an AFORE ("registered workers").
The total employee, employer and government contribution to the retirement sub-account is 6.5% of salary. Due to the approval of the pension reform in December 2020, it is mandated that since January 2023, the employers' contribution will gradually increase to sum up a 15.0% in year 2030. Contributions are based on the employee's basic salary for contributions, up to a ceiling of 25 times the minimum wage, which was modified in year 2017 due to the Unit of Measurement and Adjustment, UMA (3) implementation, and now the ceiling is 25 times the UMA. The government supplements the total contribution with a social contribution called the social quota ("cuota social") to support affiliates with lower salaries, and increase the final account balance. This social quota depends on the salary level. It is provided for each day of contribution and is adjusted quarterly in line with inflation. Due to the approval of the pension reform in December 2020, for year 2023 the current social quote will be redistributed among salaries below 7.09 UMA, instead of the actual 15 times UMA.
Transitional workers in the private sector are those employees who were working and contributing to the PAYG system in place before 1 July 1997. Although these workers began contributing to their new mandatory individual retirement account after this date, they retained the right to have their pension benefits at retirement calculated using the old DB formula. A lifetime switch option allows transitional generation workers to choose at retirement the higher of the acquired benefits under the old PAYG DB system and the accumulated balances in their individual retirement accounts under the new funded DC system. If they choose to receive benefits according to the old DB rules, some of the assets accumulated in the individual retirement account are transferred to the federal government to pay the DB benefits, while the rest of the assets (potentially accumulated in different accounts, including SAR IMSS 1992, SAR IMSS 1997, INFONAVIT 1992, the retirement subaccount, INFONAVIT 1997, and voluntary contributions) are paid as a lump sum.

Public-sector employees affiliated to the ISSSTE
Like the 1997 Social Security Law, the new ISSSTE Law modified the funding scheme from a PAYG to DC scheme. The amendments groups the 21 branches of insurances, services and benefits contemplated in the old Law into four branches similar to those established in the 1997 Social Security Law (and a section on social and cultural services): retirement, unemployment among older workers and old age; invalidity and life; occupational risks, and health. Workers affiliated to the ISSSTE are now required to have an individual account in the AFORE managed by ISSSTE (PENSIONISSSTE) or any other AFORE. Individual accounts are funded by contributions from the employee, employer (state departments and related bodies) and the Federal government contributions. These contributions are deposited in individual accounts through SIEFORES.
The total employee and employer contribution to the retirement sub-account is 11.3% of salary. Contributions are based on the employee's basic salary for contributions, up to a ceiling of 10 times the minimum wage. The government supplements the total contribution with a flat-rate social quota. This amount is updated quarterly in accordance with the National Consumer Price Index. It is paid for each day of contribution for workers earning less than 15 times the minimum wage.
The new ISSSTE Law provides a portability scheme for the transfer of savings accumulated under the ISSSTE scheme to the new IMSS scheme, and vice versa, when workers switch jobs between the public and private sectors.
All public-sector workers who were ISSSTE affiliates at the time the ISSSTE Law was approved in 2007 had the right to choose to switch to the new funded DC scheme or to remain in the old PAYG DB plan. The affiliates had a time limit of six months to choose between these two options, starting 1 January 2008.
The ISSSTE affiliates who chose to move to the new DC system (only 14.2%) received a "recognition bond", paid by the federal government, acknowledging their rights for the periods of time in which they made contributions prior to the reform. This recognition bond was credited in the individual account of the affiliates, redeemable only when close to retirement. Those who had no account in an AFORE at the time of the reform were automatically registered with PensionISSSTE for the first three years. That period ended in December 2011. Since then, workers can transfer their individual accounts to any AFORE of their choice or stay in PensionISSSTE. Since that same date, PensionISSSTE is also able to receive the transfers of individual accounts of private sector workers or self-employed workers.
New rules regarding the minimum retirement age and the contribution rate apply to ISSSTE affiliates who decided to remain in the old DB scheme (85.8%): the minimum retirement age is being increased gradually from 50 to 60 for men and from 48 to 58 for women by 2028; the contribution rate of workers for retirement increased gradually from 3.5% to 6.125% of the wage contribution base over the six years following the reform. In addition, contributions are directly paid to the ISSSTE to finance the PAYG system, except the 2% employer contribution for retirement insurance, which is deposited in an individual retirement account managed exclusively by PensionISSSTE.

(1)This chapter was competed with the information of OECD (2016), OECD Reviews of Pension Systems: Mexico, OECD Publishing, Paris. DOI: http://dx.doi.org/10.1787/9789264245938-en
(2)https://www.imss.gob.mx/sites/all/statics/pdf/leyes/LSS.pdf
(3)UMA = Unit of measurement and adjustment, http://en.www.inegi.org.mx/temas/uma/

 

Institutional Framework
The Social Security Law (1995) provided the regulatory and supervisory regime governing the pension system for private sector employees. The Retirement Savings System Law approved on April 26, 1996 sets out the structure and powers of CONSAR, and provides guiding principles for the establishment, operation and supervision of AFOREs and SIEFOREs.
The Retirement Savings System Law grants CONSAR broad powers to set and enforce rules and standards for all aspects of operation of the pension system. CONSAR has full supervisory authority over AFORES and SIEFORES, as well as supervisory authority over other participants in the pension system (such as banks and insurance companies) to the extent the activities of such entities involve the pension system.
CONSAR is empowered to issue regulations, conduct examinations, impose fines and sanctions and recommend criminal prosecutions. In the event that irregularities are uncovered in the operations of any entity subject to CONSAR supervision (including AFOREs and SIEFOREs), CONSAR is authorized to carry out an administrative or management intervention of such entity. CONSAR may revoke the authorization of any AFORE or SIEFORE found to be not complying with the Retirement Savings System Law or CONSAR´s secondary regulations.
AFORE is the name to describe a private pension fund manager in Mexico. The IMSS and ISSSTE collect contributions and allocate them to workers' individual accounts, but it is the AFOREs that manage these accounts. The AFOREs place contributions in investment funds called SIEFORES. Thus, AFORES manage individual retirement accounts, while SIEFOREs invest the assets generated in those accounts. Workers can choose their AFORE and are free to switch between them. AFORES must have five basic SIEFORES for investing the compulsory savings, and they may have additional SIEFORES for voluntary contributions and occupational pension plans. The family of basic SIEFORES follows an age-risk tolerance default criterion.
The ISSSTE Law established the creation of the National Pension Fund for Federal Government Employees (PENSIONISSSTE) as an ISSSTE decentralized public agency. For its operation, administration, and functioning, this fund is subject to the regulation and supervision of the CONSAR, and must comply with the provisions of the Retirement Savings System Law. PENSIONISSSTE operates as an AFORE, and it is financed in the same way by charging administrative fees for managing the affiliates accounts.
As of November 2022, there are 10 AFORES and 119 SIEFORES (basic and additional) that operate in Mexico. Some important aspects that CONSAR supervises are:
a) The establishment of AFORES and SIEFORES requires the authorization of CONSAR, which may grant or deny authorization at its own discretion after examining the business plan, shareholding, systems, control and management of the firm, and with the opinion of the Ministry of Finance (Secretaría de Hacienda y Crédito Público - SHCP). CONSAR is empowered to revoke the authorization of an AFORE or SIEFORE that fails to meet the standards set forth in law and regulations.
b) The Retirement Savings System Law establishes strict limitations on permissible transactions between AFORES and related financial institutions and issuers. CONSAR recognizes that given that a large percentage of pension contributions may ultimately be managed by AFORES, which are subsidiaries of financial groups and/or affiliated with other financial institutions, strict supervision and enforcement of conflict of interest rules will be required to build public confidence in the system.
c) CONSAR establishes a 20% limit on the total individual accounts that may be managed by any single AFORE.
d) The Retirement Savings System Law provides that the board of directors of each AFORE must be composed at least with five members (two must be independent members), and must have a compliance officer, who is responsible for ensuring compliance with statutory requirements and internal rules through the establishment of a self-regulatory process. AFORES must provide sufficient resources to compliance officers to enable them to perform their functions adequately. The compliance officer must attend all meetings of the board of directors. The independent members of the board of directors and the compliance officer of each AFORE must be approved by the Consulting and Vigilance Committee of CONSAR on the basis of the moral integrity and technical management capacity of the nominees.
e) AFORES charge commissions which are deducted from the workers' personal accounts. CONSAR has issued regulations which authorize each AFORE to set management fees based only on a percentage of assets under management.
The Retirement Savings System Law provides that the Government Board of CONSAR, every year in the month of December, must approve the fees proposed by the AFORES, that they will charge during the following year.
The authorized commissions for 2022 are as follows:
Basic and Additional SIEFOREs' fees (2022)
 COMISIÓN 2022 
 AFORE  POR SIEFORE   % 
 Azteca BÁSICAS 0.57 
 Citibanamex  Citibanamex de AV Plus (LP2)  0.57
 Coppel BÁSICAS 0.56
 Inbursa BÁSICAS  0.57 
 Invercap BÁSICAS  0.57 
 PENSIONNNISTE  BÁSICAS 0.53
 Principal BÁSICAS  0.57
 Profuturo Profuturo CP
 Profuturo LP
 1.25
 1.25
 SURA SURA AV1
 SURA AV2
 SURA AV3
 1.40
 1.30
 1.25
 XXI Banorte XXI Banorte Ahorro Individual (SIAV) 
 XXI Banorte Previsión 1 (SPS1)
 XXI Banorte Previsión (SSP2)
 0.57
 0.57
 0.57

Source: CONSAR https://www.gob.mx/consar/articulos/comisiones-siefore-basica-y-adicional
Basic SIEFOREs' fees (2022)

Comisiones de las Afores (% sobre saldo administrado
AFORE  Comisión en 2022 
 Azteca           0.57
 Citibanamex            0.57
 Coppel           0.566 
 Inbursa           0.57 
 Invercap            0.57
 PENSIONISSSTE            0.53 
 Principal            0.57 
 Profuturo           0.57 
 Sura           0.57 
 XXI Banorte           0.57 
 Promedio del Sistema           0.566

Source: CONSAR https://www.gob.mx/consar/articulos/comisiones-vigentes-en-2022?idiom=es

An important element of the pension system is the centralized national database for all the information related to the pension fund system. This database known as National Database for the Retirement System (BDNSAR) contains information on each individual and the fund manager he/she is affiliated to. The primary function of this database is the identification of the individual accounts with each AFORE, the control of the possible switches from pension manager chosen by the members and the distribution of the periodic money flow (e.g., social insurance contributions) to each account.
The database is property of the Federal Government and it is operated by a private entity called PROCESAR. This company is the only one authorized by CONSAR to operate the database. One of the most important tasks of PROCESAR is to help in the unification of accounts, the purpose is that each individual affiliate should not have more than one account in the system.


Desplegar

Covered population

The defined contribution pension system covers salaried workers enrolled to IMSS for private-sector (21,068.708 active members in June 2022) and to ISSSTE for public-sector (3,120,526 active members in December 2021); the coverage to both institutions amounts 41 percent, considering the labour force of 59,338,419 (as of second quarter 2022).
Independent workers do not have the legal obligation to become affiliates and make contributions into the compulsory pension system, even though they can voluntarily open an individual account in the AFORE of their choice and make non-compulsory contributions.
In Mexico, there are also occupational pension plans derived from collective labour agreements, as well as others offered by insurance companies, but they are not part of the mandatory defined contribution pension system and CONSAR has not full authority on them. Still, a significant proportion of informal workers are not cover by the mandatory defined contribution pension system or occupational pension plans.

Enforcement of affiliation

Mandatory personal scheme: Since defined contribution pension system was implemented, IMSS members had the right to open an individual account in the AFORE of his or her choice. The workers have the possibility to change AFORE under certain situations regulated by CONSAR. In case of workers who do not choose an AFORE, the Retirement Savings System Law stipulates that the workers' resources must be assigned to an individual account at the AFORE that have achieved a greater Investment Net Return, these workers are known as "assigned workers".
In the case of workers affiliated to ISSSTE, currently, members must have an individual account operated by the default public administrator PENSIONISSSTE or by an AFORE of their choice.
Each AFORE has a sales force that tries to enrol new workers and assigned workers. Sales agents have to be licensed and certified by CONSAR, which also regulates their remuneration. From year 2023, the "sales agents" figure was changed to a "pension advisor" figure who will be also certified, and that shall provide the workers the correct advice. This will happen to because their salary will not depend on the commissions as much as it used to be linked to their sales (transfers or switches and new registers).

Sources of funds

Mandatory personal scheme: The total employee, employer and government contribution to the retirement, severance in advanced age and old-age insurance sub-account is 6.5 per cent of salary (of which 1.125 per cent is paid by the employee, 5.15 per cent by the employer and 0.225 per cent by the government) for workers of the private sector and 11.3% for workers of the public sector, of which (6.125 per cent is paid by the employee, 5.175 per cent is paid by the employer)
The government supplements the total contribution with a flat-rate amount (the social quota - cuota social). Its amount depends on the salary level for private sector employees.

Member contributions

The chart below illustrates the composition of the social insurance contributions (as a percentage of the integrated wage, with the exception of the matching contributions) of the DC mandatory pension system, depending on the social security institution (IMSS vs. ISSSTE).

Employer contributions

See: Member contributions

Other sources of funds

See: Member contributions, including the housing contribution.

Methods of Financing

Mandatory personal scheme: Both IMSS and ISSSTE pension systems are defined contribution systems, based on mandatory individual accounts managed by the AFORES. Retirement, Old Age, and Severance at Old Age insurance is funded by the amount saved in the individual account. Disability and survivorship benefits are covered under a separate insurance arrangement which operates as a defined benefit (DB) scheme and is managed by the IMSS and ISSSTE. This insurance covers the risk that the deceased or disabled member's capital accumulated in the retirement, severance at advanced age and old-age. Insurance contributions' sub-accounts is not sufficient to purchase disability or survivorship benefits of the statutorily prescribed amount and meets the additional cost of the defined benefits.

Asset Management

Mandatory personal scheme: In Mexico´s DC mandatory pension system, the contributions in the individual accounts must be invested in a diversified portfolio in order to obtain returns that increase the balance available to finance pensions. The asset management is carried out through pension investment societies, called SIEFORES. The SIEFORES are similar to the so called life cycle funds, in which each fund offer different investment portfolio reflecting different levels of risk according to age and risk profile. In 2008 CONSAR increased the number of pension funds for each AFORE from 2 to 4 basic SIEFORES (SB1, SB2, SB3, SB4) and in 2015 it established another basic SIEFORE (SB0). As of December 2019, there were implemented the Generational SIEFOREs, which intend to avoid the move from one SIEFORE to another of lower risk, due to the age range. Now, they look more like Target Date Funds, TDFs, because each one of the ten SIEFORE, correspond to a generation of five years range, for example SIEFORE 90-94 includes all the people born during the years of 1990 to 1994, and their investment portfolio considers the time horizon until the generation reaches the age of retirement, 65 years old, avoiding the recognition of important losses by following a glidepath to maintain the correct investment portfolio for the generation. The ten SIEFOREs are: Initial SIEFORE, for people who was born after year 1995. SIEFORE 90-94, SIEFORE 85-89, ..., SIEFORE 55-59, and the Pension SIEFORE for employees in the retirement ages (used to be called "SB0").
AFORES may also operate additional SIEFORES for voluntary savings, occupational private pension plans or pension funds for local governments.
The basic SIEFORES were classified by the following employee's age brackets:
- SB0: for 60 year old or older and workers near retirement;
- SB1: for 60 years-old or older;
- SB2: between 46 and 59 years-old;
- SB3: between 37 and 45 years-old;
- SB4: until 36 years-old.
Before the migration to TDFs, each basic SIEFORE had specific investment regime that depended on the age and risk profile of the worker. For instance, the SB4 (young workers) was the most aggressive investment regime and SB0 (workers near to retirement) was the most conservative one. As workers aged, their pension assets were invested in a more conservative investment regime (with lower exposure to equity and a greater proportion of fixed-income instruments) to reduce the volatility of their returns. Thus, a young worker was gradually moved from Basic SIEFORE 4 (SB4) to SB3, SB2, SB1 and finally SB0. Nonetheless, any worker was able to opt to invest his/her resources in any fund more or less conservative than the default option, which is not possible now with the TDFs.
The investment regime of basic SIEFORES is characterized by its differentiated quantitative limits (depending on the basic SIEFORE) and qualitative requirements. The quantitative limits are established depending on the permitted asset class (equity, currency, securitizations, inflation protected securities, commodities), the nationality of the issuer (limit established by the SAR Law), the credit rating of the issuer, holdings in a single issuance and conflicts of interest limits and provisions.

Preservation, portability, transferability

Mandatory personal scheme: Workers can choose any AFORE. They may switch freely their AFORE once a year, given that they have been members of their current AFORE for at least one year. The worker can change AFORE before one year if:
i. - the new AFORE has a higher net return in a given time, plus an additional criteria shown below:
ii. If the current AFORE (i.e., the one that has already the employee´s savings) has obtained a consistently good performance, then the worker may not switch to a different AFORE.
iii. If the AFORE that the worker may wish to switch has obtained a consistently bad performance, then the worker may not be transferred to AFORE he/she wishes.
iv. the current AFORE changes its investment strategy;
v. the current AFORE increases its administrative fees;
vi. the current AFORE merges with another AFORE;
AFOREs must not charge workers any fee for switching to a different AFORE.
Mexican government has recognized the vested rights of transitional workers, i.e. private-sector employees who contributed to the former publicly-managed old-age pension system (before 1 July 1997) and retire after July 1, 1997. At retirement, transitional workers can choose between the higher of a benefit equal to that payable if they had stayed in the previous defined benefit scheme or the benefit from the mandatory define contribution pension scheme.
As mentioned before, public sector employees who entered the labour force after 31 March 2007 had a period of 6 months to choose between the old schemes, provide in the transitory article 10 transitory, or the DC system (recognition pension bond).

Retirement Benefits

Benefit qualifying conditions

Withdrawal of funds before retirement

Mandatory personal scheme: IMSS affiliates are entitled to make partial withdrawals from the balance in their individual account in two cases: unemployment or marriage. Affiliates, who at the moment they marry for the first-time have complied with a minimum of 150 weeks of contribution payments, are entitled to a partial withdrawal of funds for an amount equivalent of 30 days of the current general minimum wage in Mexico City. This right can only be exercised once and cannot be requested for subsequent marriages. Exercising this benefit reduces the balance in the individual account as well as the number of weeks of contribution paid into the IMSS. In order to subsequently cover the number of lost weeks of contributions, the employee who exercised this right must deposit the amount withdrawn.
Affiliates who have been paying contributions into the IMSS, but are unemployed, are entitled to a partial withdrawal of funds as of the 46th calendar day of unemployment once every five years depending on:
- If the account has been open for at least 3 years before, and has paid contributions into the IMSS for 2 two years, the affiliate receives 30 days of the last wage registered, with a limit of 10 times of the current general minimum wage in Mexico City.
- If the account has been open for at least 5 years before, the affiliate may withdraw the lower amount between the equivalents of 90 days of their wage or receives 11.5% of the retirement sub-account.
Like IMSS employees, ISSSTE affiliates are entitled to make partial withdrawals from the balance in their individual account in case of unemployment. However, the benefit formula is a bit different. ISSSTE affiliates may withdraw the lower amount between the equivalents of 75 days of their wage or 10% of their account balance, as of the 46th calendar day of unemployment. Affiliates are entitled to this partial withdrawal once every 5 years.

Benefit structure / formula

Mandatory personal scheme: Defined contribution (DC). The Social Security Law and ISSSTE Law consider that when a worker fulfils the age requirements and contribution weeks, he or she can choose between two pension modalities, and with the pension reform of December 2020, they can choose a mix of both modalities:
- Life annuity. The affiliate signs an irrevocable contract with insurance company of his/her choice to buy an annuity. Under this contract, the worker transfers ownership of his/her funds in the individual account to the insurance company and the latter commits to pay him/her a monthly pension for life, indexed to inflation. A life annuity can only be bought by the affiliates who have enough funds to obtain a pension that is equal to or higher that the guaranteed pension in effect at the time that he/she chooses this modality.
- Programmed withdrawals. In this case, the affiliate's balance in the individual account is still managed by the AFORE and therefore continues to obtain the returns of the corresponding SIEFORE. In this case, the AFORE pays the pension through monthly withdrawals from the individual account until its balance is depleted. The amount of the monthly payment is adjusted annually considering the life expectancy of the pensioner at the time of the recalculation and the new balance in the individual account, which includes the return earned in the last period and discounting the payments made.
The amount of the programmed withdrawal plan cannot be lower than the guaranteed pension. If in the periodic recalculation, the resulting amount were below the guaranteed pension, the AFORE would pay the pensioner a monthly amount equivalent to the guaranteed pension until the balance is depleted.
The DC pension system guarantees a minimum pension to eligible people who, at the time of retirement, do not have the sufficient resources in their individual account to buy a life annuity and pay the survival insurance.
The guaranteed pension is paid in the beginning with the existing balance in the individual account, and when this balance is depleted, is funded from the Federal budget.
In case that workers do not complete the weeks of contribution indicated in the Law (both cases, private and public employees), they will receive a "negative for pension" and the individual account balance can be recovered as a lump sum, or they can continue the contributions to obtain the required weeks for a guaranteed pension.

Benefit adjustment

The pension amount will be adjusted by inflation each year, as established by the product: annuity or programmed withdrawal, considering the new financial market conditions and life expectancy.

Survivors

Benefit qualifying conditions

Mandatory personal scheme: Survivorship benefit may be paid if the deceased member was a disability pensioner or was a contributor who had paid at least 150 weeks of contributions at the time of death in the case of private sector employees and 3 years in the case of public- sector employees.
Eligible survivors are a widow(er) or cohabiting partner with children; a widow(er) without children who was married to the deceased for at least six months, subject to the deceased being younger than age 55 at the date of marriage; if the deceased was age 55 or older at the date of marriage or if the deceased was a pensioner, the marriage must have lasted at least 12 months. Other survivors are a cohabiting partner without children who lived with the deceased for at least five years; children up to age 16 (age 25 if a student or older if has disability); and parents in the absence of other eligible survivors. All eligible survivors must have been dependents of the deceased.
For pensioners in the DC scheme, it is mandated that with the account balance they buy a survival insurance before the annuity which, in case of his/her decease, the widow and children up to age 16 (age 25 if is a student or older if has disability), will receive the benefit established by the law.
When the pensioner prefers programmed withdrawals, in case of decease, the balance will be obtained by the beneficiaries.

Benefit structure

Mandatory personal scheme: For the private sector employees, when insured or pensioner's disability death occurs (by an event other than an occupational hazard), IMSS shall provide its beneficiaries with: - Widowhood pension: equal to 90 per cent of the disability pension paid or payable. When eligibility ceases (e.g., when the widow married again), widow receive a final benefit equal to three years of pension.
- Orphan pension: each orphan younger than age 16 (age 25 if a student or older if has disability) receives a pension equal to 20 per cent of the disability pension paid or payable or equal to 30 per cent for a double orphan (both parents passed away). When eligibility ceases, orphans receive a final benefit equal to three months of pension.
The sum of the nuclear family pension (widow(er) and orphan(s)) shall not exceed 100% of worker´s pension which would have been entitled in case of disability.
- Parent´s pension: in the absence of the above survivors, 20 per cent of the disability pension paid or payable is granted to the surviving parents.
For the public sector employees, when insured death occurs (by an event other than an occupational hazard), ISSSTE shall provide its beneficiaries with deceased pension to the widow and each orphan younger than age 18 (age 25 if a student or older if has disability), each of which receives an equal percentage of the pension. The same case is to the surviving parents. When eligibility ceases, only the widow receive a final benefit equal to six months of pension.
The deceased member's accumulated capital in the retirement, severance at advanced age and old-age insurance contributions' sub-account must be used to purchase the survivorship benefits. If the accumulated capital in the sub-account is not sufficient to pay the prescribed survivorship benefits it is supplemented from the social security agency.
If the accumulated capital in a deceased member's individual account exceeds the amount necessary to purchase the prescribed survivorship benefits, eligible survivors may withdraw the excess as a lump sum.

Benefit adjustment

Mandatory personal scheme: Survivorship pensions are adjusted to the Consumer Price Index.

Disability

Benefit qualifying conditions

Disability exists when the insured is unable to procure, through equal work, a paid salary greater than fifty per cent of their payment received during the last year of work. This failure results from an out-workplace accident or non-occupational illness. The declaration of disability is made by the IMSS or ISSSTE, where appropriate.
Mandatory personal scheme: The disabled member must have paid at least 150 weeks of contributions with a loss of at least 75 per cent in normal earning capacity or at least 250 weeks of contributions with a loss of between 50 per cent and 75 per cent of earnings capacity.

Benefit structure

Mandatory personal scheme: For the private sector employees, disability pension is equal to 35 per cent of the member's inflation adjusted average salary in the last 500 weeks of contribution plus family allowances from 10 per cent to 15 per cent of the disability pension. In any case, the sum of these benefits may be less than guaranteed pension. For the public sector employees, disability pension is equal to 35 per cent of the member's average salary in the last 52 weeks of contribution, and can´t be less than guaranteed pension.
For both schemes, the disabled member's accumulated capital in the retirement, severance at advanced age and old-age insurance sub-account must be used to purchase the disability benefit. If the accumulated capital in the sub-account is not sufficient to pay the prescribed disability benefits, it is supplemented from the social security agency.
If the accumulated capital in the disabled member's individual account exceeds the amount necessary to pay the disability benefit, the member may withdraw the excess as a lump sum.
Incapacity: Incapacity or death caused by a workplace accident or occupational disease is covered by the publicly-managed social security scheme. In this case, the pension is covered under occupational hazard insurance reserves and the balance of individual accounts, without requiring a minimum duration of contributions.
For the private and public sector employees, the incapable worker receives 100% of their final salary as the IMSS or ISSSTE determines whether it is a permanent or temporary disability.
In case of total permanent invalidity decreed, the worker receives a pension equal to 70% of their salary, in the case of private sector employees, or 100% of their salary, in the case of public sector employees. In the case of partial disability, the pension is adjusted according to the degree of disability in both cases.
If the accumulated capital in the incapable member's individual account exceeds the amount necessary to pay the incapacity benefit, the member or his beneficiaries may withdraw the excess as a lump sum.
For the private sector employees, in the case of death, his widow receives a pension equal to 40% of the disability pension payable, and each orphan younger than age 16 (age 25 if a student or older if has disability) receives a pension equal to 20 per cent of the disability pension payable or equal to 30 per cent for a double orphan (both parents passed away).
The sum of the above pensions shall not exceed 100% of total incapacity pension. In the absence of the above survivors, 20 per cent of the incapacity pension paid or payable is paid to surviving parents.
For the public sector employees, in the case of death, his widow and each orphan younger than age 18 (age 25 if a student or older if has disability), receives a pension equivalent to 100% of their final salary, each of which an equal percentage of the pension. The same case is to the parents.

Benefit adjustment

Mandatory personal scheme: The disability and incapacity pension is indexed adjusted to the Consumer Price Index.

For further details on benefits provisions, click here.

Protection of Assets

Mandatory personal scheme: Assets in the individual accounts are completely separate from the assets of the AFORES, since the SIEFORES are independent legal entities (investment societies specialized on retirement funds, or "Sociedad de Inversión Especializada en Fondos para el Retiro" by its initials in Spanish).
Assets of SIEFORES must be kept by a custodian.

Financial and Technical Requirements / Reporting

Mandatory personal scheme: Each AFORE will maintain a minimum paid-in capital of MXN$25 million. Also, each SIEFORE will maintain a minimum paid -in capital of MXN$100 thousands.
AFOREs also will maintain a special reserve of at least 0.55 per cent of net assets for each of the SIEFORE funds, and will decrease to 0.49 per cent at the end of year 2024, as amended in March 2022. The special reserve for additional SIEFORES is 1 per cent of assets under management up to a maximum of MXN 900 thousands. The paid-up capital and the special reserve must be invested in the SIEFORES managed by the AFORE.
AFORES must provide the regulatory and supervisory authority, the National Commission for the Retirement Savings System (CONSAR), with required information on a daily basis and non-compliance will attract sanctions.
AFOREs must have their financial statements audited once a year by an independent auditor. Audited financial statements must be disclosed to the CONSAR and be published in two national newspapers.

Whistleblowing

Mandatory personal scheme: Compliance officers at any time must inform the CONSAR of any irregularities which they detect in the exercise of their functions.
Also, if independent auditors detect irregularities or any other situation during the audit of the financial statements, they must present a detailed written report of the situation observed.

Standards for service providers

Mandatory personal scheme: Custodians comply with CONSAR directives and must be independent from the AFORES. Custody costs are paid by the AFORES.
Auditors hired to audit financial statements should be independent form AFOREs and must complete the following requirements:
- Be graduate in accounting, with accreditation by the Ministry of Public Education;
- Have a current registration issued by the General Administration of Federal Fiscal Audit;
- Have at least five years of professional experience in auditing related to financial sector entities;
- Do not be a public servant;
Independent experts hired to certify AFOREs must complete the following requirements:
- Minimum experience of two years in the process which will be certificated;
- Once they are authorized, they must not perform external audit functions;
- Have not been convicted of a pecuniary crime;

Fees

Mandatory personal scheme: AFOREs may charge administrative fees only on assets under management.
Each November, AFOREs must present their fees proposal for the next year to obtain the approval from the governing board of the National Commission for Retirement Savings System (CONSAR).

Winding up / Merger and acquisition

Mandatory personal scheme: Winding up procedures of an AFORE are initiated based on a decision by the AFORE itself or based on an order by the CONSAR. When an AFORE is being wound up, it must liquidate the assets of its SIEFORES within 180 days and transfer them to a consolidated account managed by the Central Bank (Banco de México). Within this period, workers of the AFORE that is being wound up must choose a new AFORE to which the Central Bank must transfer their accumulated savings without delay.
In a merger procedure it must remain the lowest fee of any of the AFOREs merged, according to the criteria issued by the Governing Board of CONSAR. Also, in this procedure the worker of the AFORE merged has the right to switch to another AFORE at any time during the process.

Bankruptcy: Insolvency Insurance / Compensation Fund

Mandatory personal scheme: Insolvency insurance is not compulsory and no compensation fund exists.
Each AFORE must maintain a special reserve that must be used to compensate members for the loss of assets due to a violation of the statutorily prescribed investment restrictions.

Disclosure of information / Individual action

Mandatory personal scheme: SIEFORES must distribute prospectuses containing information on their investment strategy. These documents must, before their distribution, be reviewed and approved by the CONSAR.
AFORES must publish their financial statements quarterly and their audited financial statements annually in two national newspapers.
Each AFORE is required to establish a specialized unit to respond to questions and claims from workers and employers. Claims not settled by this unit are passed to a system of conciliation that is run by the government through the National Commission for the Protection and Defence of Financial Services Users (Comisión Nacional para la Defensa de los Usuarios de Servicios Financieros - CONDUSEF). CONDUSEF was created in 1999 with the objective of promoting, advising, protecting and defending the rights and interests of individuals that receive services from institutions belonging to the Mexican financial system. To this end, CONDUSEF responds to, and resolves any inquiries or claims that are presented to it, conducts the necessary conciliation procedures and offers guidance and legal advice to members in any court action against AFORES and/or SIEFORES.

Other measures

Mandatory personal scheme: None.

Desplegar

Taxation of member contributions

Mandatory personal scheme: Mandatory member contributions are not tax-exempt.

Taxation of employer contributions

Mandatory personal scheme: Mandatory employer contributions are not tax-exempt.

Taxation of investment income

Mandatory personal scheme: Investment income is always tax-exempt as long as it stays invested.

Taxation of benefits

Mandatory personal scheme: Withdrawn benefits by annuities or programmed withdrawal are tax-exempt up to the limit of fifteen times the annual UMA. Benefits above this limit are taxed as a general income. Withdrawn benefits by lump sum are exempt up to ninety times the annual UMA, per year of service.

Derechos de autor

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