Afore industry profits fall 16% on weak revs, higher costs
Bnamericas Published: Monday, August 02, 2004
Mexico's 13 pension fund companies reported net income of 1.93bn pesos (US$169mn) in the first half of 2004, a 15.7% drop from a year ago because of weak revenue growth and higher costs, according to regulator Consar. Total revenues grew a meager 1.6% to 6.46bn pesos, with the commission component rising 6.3% to 6.22bn pesos. Costs increased nearly 20% to 3.45bn pesos due to big jumps in administrative, operating, and marketing expenses. Mexico adopted the Afore model to replace the state-funded system managed by social security agency IMSS. Under the current model, salaried workers contribute 6.5% of their gross wage to an Afore pension fund manager, which then invests that money through its Siefore investment vehicle. Assets under management at the 13 Siefores grew 18.2% to 436bn pesos at the end of the half. Siefores had a real return on invested assets of 4.8% for the 36 months ending June 30, 2004. Workers enrolled in the system increased 6.3% to 32.3 million, of which about 64% were people directly affiliated with an Afore. The remaining accounts usually belong to individuals without a permanent address or who make sporadic contributions because of an unstable employment history, which Consar assigns once every two months to the Afores with the lowest commission structures. The number of affiliated workers who changed Afore during the half totaled 1.22 million, an increase of 133% from a year ago. In the case of assigned accounts the number of transfers rose 56% to 1.84 million. Account transfers have soared during the last 18 months as a stagnant economy has spurred Afores to poach clients from competitors and an information campaign sponsored by Consar has raised public awareness of the pension system and its costs. Afores charge their clients commissions on contributions and on returns from invested funds. The industry's average commissions were 1.61% on contributions and 0.75% on returns, assuming a 5% annual rate of return over 25 years.
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