Study shows very small pensions awaiting many Mexicans

Upon retirement, workers participating in Mexico's pension fund manager (Afore) system can expect to receive monthly benefits equivalent to 24.3% of their pre-retirement salary, according to federal auditing agency (ASF).

"Consequently, the ASF has determined that the [pension] replacement rate would improve as a function of an increase in the percentage of mandatory contribution, or if greater voluntary contributions were made by the workers," said the agency in its 2017 public accounts report, recently presented to congress.

The report arrives as legislators are set to debate a proposal reforming several aspects of how Afores invest workers savings and rules on commissions; however, the initiative does not include more controversial measures like changes to the retirement age or mandatory contribution rates.

The OECD's most recent data on net pension replacement rates shows Mexico's rate at 30% in 2016, with 48 of 51 countries tracked by the entity having higher net replacement rates. The data also shows Mexico having a 26% gross replacement rate, holding the same spot in the ranking.

Thus at 24.3% in 2017, the ASF study (which does not specify net or gross) suggests that not only does Mexico continue to have one of the lowest replacement rates in the OECD, but that the rate may actually be falling.

The ASF report also offered projections on how modifications to the current framework would alter retirement benefits, supposing the changes had been in effect for those workers beginning to retire in 2021 - the first year that workers entering the workforce at the start of the Afore system in 1997 begin to retire.

An actuarial analysis showed the replacement rate would improve 5.8 percentage points to 30.1% with the following modifications: an increase of 1% in the Afores' real-term investment yields; a 10% decrease in the average commissions charged by the Afores; a two-year increase in the retirement age to 67; and an increase in contributions by workers, whether voluntary or obligatory.

In its presentation to congress, ASF noted that while this would be a significant improvement, the nation's replacement rate would remain well below that of the OECD average of 70%, as reported in local news outlet El Economista.