Mexico's pension reform still stuck in congress

More than one year after its approval in the lower chamber of Mexico's congress, the pension reform is still in the senate, and has not even been discussed as yet.

This will not be an easy reform to approve, as it involves the creation of a universal pension, unemployment insurance and fortification of the retirement savings system, according to local daily El Economista.

In the case of the universal pension, funding should come from the national budget, which is likely to exert additional pressure on public finances, while financing for unemployment insurance is expected to come from the housing fund.

Some experts have voiced their criticism of the fact that the bill does not consider an increase in workers' contributions, which currently stand at 6.5% of their salaries.

"While workers' contributions are not increased, pensions will be lower than expected. Mexico is the OCDE country where workers' contribution are the lowest, being 11%-13% on average in these countries," Genaro López, pension expert at Universidad Panamericana, was reported as saying by El Economista.

Another subject to be dealt with in the reform is the current 20% limit on foreign investments by pension funds. The 11 pension fund administrators (Afores), which manage the retirement funds of more than 53mn people, have these resources invested in government paper, with less than 20% invested abroad.

According to local pensions regulator Consar, the average nominal return of pension funds in the period 1997-July 2015 was 19.89% per annum, or 6.15% in real terms.