The “EXECUTIVE ORDER amending, adding to and derogating various provisions of the Social Security Law and of the Law on Retirement Savings Systems” was published on December 16, 2020 in the Official Gazette of the Federation.
The 1997 Reform that created the Afores System [Retirement Funds Administrator System] prescribed that, in order to be entitled to the minimum guaranteed pension, 1,250 weeks of payment of social security dues and a minimum age of 60 years are required for workers insured solely by the Afore (those who started paying social security dues under the law that created Afores) or having sufficient funds in their individual account to generate the minimum guaranteed pension were required.
Persons entitled to social security benefits to whom the 1973 Law still applies, given that they paid their social security dues under that regime, will have the right to retire on a pension under the rule of 500 weeks of payment of social security dues and a minimum of 60 years of age. This pension is approximately 40% of the base salary used for the payment of social security dues for the last 5 years, the real average of the pensions under that Law being of between $4,000 and $8,000 pesos per month. This scheme, together with the PEMEX, CFE [Federal Electricity Commission] and IMSS [Mexican Social Security Institute] retiree portfolios (the only ones that retire with 100% of their integrated salary and that increase with every revision of the CCTs [Collective Bargaining Agreements]), cost the Federal Government approximately 850 billion pesos, an amount that constitutes the largest debt of the Mexican State.
There are 66 million individual accounts, and only 21 million of them are active. Accounts that are considered to be inactive are the ones that stopped receiving contributions for more than three consecutive months. It is important to note that many workers started paying contributions when they were between 30 and 40 years of age. By 2021, 75,000 workers insured solely by the Afore will reach retirement age, and only 5 of them will have the right to a pension.
Given the current unemployment scenario, the lack of stability in the labor market, the lack of stability in jobs and low salaries, the excessive growth of informality together with the severe crises that we have suffered during the last 25 years, 76% of workers insured solely by the Afore will not have the right to a pension due to their failure to meet the mandatory requirements by law to obtain a pension; they may not have completed the 1,250 weeks of payment of social security dues or they do not have sufficient funds to generate the minimum guaranteed pension, which is of approximately 3,274 pesos per month.
We must take into account the serious crises that we have suffered in the last 25 years, together with the fact that Afores have invested a large part of the capital in Government bonds and high commissions; these factors have caused the individual accounts to have insufficient capital to at least generate the minimum guaranteed pension, which makes it necessary to reduce the weeks of payment of social security dues in order to provide the minimum guaranteed pension and increase the employers’ contribution in the category of Retirement, Early Retirement and Old-age Retirement .
Consequently, given the above, instead of collecting a pension, persons entitled to social security benefits will have a right to withdraw the capital from their individual account. This means that said capital will probably run out quickly and these persons entitled to social security benefits will not have a pension for their old age, which poses a serious social and economic problem for the Mexican population.
Under this scheme, the existence of the Reform in Pension matters, under the following terms, is important:
In regard to the Weeks of Paid Contributions for Granting a Pension for Early Retirement and Old-age Retirement, the number of weeks of paid contributions for persons entitled to social security benefits to have access to a pension were reduced, through a gradual adjustment starting with 750 weeks on the year 2021 and ending with 1,000 weeks on the year 2031, instead of the 1,250 weeks required prior to the reform.
Now, in the case of the requirements for Granting Old-age Pensions, they were modified in the terms that were previously explained from 1,250 to 1,000 weeks of paid contributions, acknowledged by the Mexican Social Security Institute (IMSS), in order to have access to the right to enjoy the benefits of said pension.
Family allowances and assistance aids were included as part of the pension that will be granted for retirement, early retirement and old-age retirement, which will be financed through the social dues contributed by the Mexican Government and the employer.
Regarding the requirements for obtaining the Guaranteed Pension, it was specified that one must be sixty years old or older and having had paid social security dues for a minimum of 1,000 weeks, taking into consideration the average of the Base Salary for Computing Social Security Dues and Benefits (SBC) for all of the time during which social security dues were paid, in the following terms:
For the year of 2021, a minimum of 750 weeks of paid contributions is required;
For the year of 2031, a minimum of 1,000 weeks of paid contributions is required;
The amount of the pension will be updated annually in the month of February, in accordance with the Consumer Price Index, with the objective of maintaing the purchasing power of said pension.
Once the resources of the individual account have been exhausted, the Federal Treasury will become involved and, through it, the guaranteed pension will be covered by the Federal Government.
In case of death of the Worker, the payment of the Lifetime Annuity made to the beneficiaries will be made through the Federal Treasury. This due to the fact that the Federal Government will have the obligation of providing the resources required for its payment. The designation of beneficiaries made by the workers will become effective from the date in which the AFORES and the institutions conducting similar functions of a public nature implement the corresponding adjustments, in accordance with the provisions of a general nature issued by the National Commission of the Retirement Savings System (CONSAR).
Employees enrolled in the system who apply for a pension for early retirement or old-age retirement may choose one of the following options:
Obtain a life annuity with the insurance institution of their choice;
Keep their balance in their individual AFORE account and make programmed withdrawals against said account;
Change the old-age pension modality
This current reform provides that persons having access to an old-age pension have the option of taking out a policy with a public, social or private insurance company of their choice to obtain a life annuity or, otherwise, keeping the balance of their individual account in an AFORE, or in both.
Employees enrolled in the system may retire on a pension before reaching the ages established in the modes for early retirement and old-age retirement as long as the pension determined as a life annuity is over 30% higher that the guaranteed pension, once the premium of the survivorship insurance for his beneficiaries has been covered.
The measure to determine aid for marriage expenses is modified, as it will now be of 30 UMAs [Units of Measure and Update], compared to the previously established 30 minimum wages.
An update of the contribution made by the employer for the concepts of early retirement and old-age retirement was made through a table that will be gradually updated in line with the worker’s SBC and said salary as the number of UMAs, as follows:
In 2021 and 2022, employers will continue covering the employer’s contribution of 3.150 % over the base salary used for the payment of social security dues of all of its employees;
In 2023 the employer´s contribution will range from 3.150 % for workers that earn a minimum wage to up to a maximum of 4.241 %, for workers with an SBC of 4.01 UMAs or more;
From 2024 to 2029 the employer´s contribution will be from 3.150 % for workers that earn a minimum wage to a maximum of 5.331 %, 6.422 %, 7.513 %, 8.603 %, 9.694 %, and 10.784 %, for every subsequent year, for workers with an SBC of 4.01 UMAs or more.
For 2030, it will be done in accordance with the following:
1 Minimum wage: 3.150 %;
1.01 Minimum wages at 1.50 UMAs: 4.202 %;
1.51 to 2 UMAs: 6.552 %;
2.01 to 2.5 UMAs: 7.962 %;
2.51 to 3 UMAs: 8.902 %;
3.01 to 3.5 UMAs: 9.573 %;
3.51 to 4 UMAs: 10.077 %; y
4.01 UMAs and above: 11.875 %;
The State will provide a social contribution for each day of payment of social security dues for workers earning up to 4 UMAs.
To receive the pension from a plan established or contracted by the employer or, otherwise, deriving from collective bargaining, the worker must comply with the number of weeks of paid contributions and be at least sixty years old.
It is established that, in order to obtain the resources of the pension plan, he may exercise his right to have the AFORE grant him the available resources though the financial entity designated by the worker with the objective of acquiring a pension or, otherwise, receive them in a single payment when the pension he enjoys is higher, by 30%, than the guaranteed pension that corresponds to him.
A modification was made to the frequency with which the worker may make withdrawals from the voluntary contributions’ subaccount; with the reform this frequency is changed to ‘at any time’, following the procedure established by the CONSAR. Prior to the reform, the frequency was only of every 6 months.
The beneficiaries of the worker who is the holder of an individual retirement insurance, early retirement and old-age retirement account are acknowledged to be those expressly designated in the contracts with the AFORE entered into by these institutions and the worker. The worker may substitute, at any time, those designated as beneficiaries as well as the percentage designated to each one of them. In the same manner, the power for the competent Courts to resolve conflicts derived from the appointment of beneficiaries is added.
The reform provides that the table corresponding to the guaranteed pension for the purposes of programmed retirement will be taken into account. This table will be used for the calculation of an annuity that will be equal to the result of dividing the balance of the individual account of the employee enrolled in the system by the necessary capital to establish a unit of life annuity for said employee and his beneficiaries that is, as a minimum, equal to the value corresponding to the guaranteed pension that corresponds to him.
It was established that the right of the worker or pensioner and, if applicable, his beneficiaries, to receive the resources of his retirement subaccount, early retirement and old-age retirement is imprescriptible.
Nevertheless, it is established that the IMSS may make use of said resources after ten years of their becoming payable with no need for a court order, as long as it creates a reserve that is sufficient to attend to the requests of restitution of pensioned workers or beneficiaries.
The commissions charged by the AFORES are subject to a maximum, taking into consideration the charges in this regard in other countries. It is established that the Managing Board of the CONSAR will have a period of 30 working days, from the entry into force of the reform, to make the necessary modifications to the corresponding provisions of a general nature, with the objective of complying with the provisions in regard to the charge of commissions.
A conceptual modification of the following terms was made;
Individual account: It is comprised of the retirement, early retirement and old-age retirement accounts as well as of the accounts for housing and voluntary contributions made by the worker.
Life annuity: it is stipulated, by contract, that the insurer undertakes to periodically pay a pension during the life of the pensioner in exchange for obtaining all or part of the resources accumulated in his individual account;
Scheduled withdrawals: it is the modality through which a pension is granted, dividing the partial or total amount of the resources of the individual account, considering the life expectancy of the worker.
The minimum guaranteed pension ranges from $2,622 to $8,241.00 pesos.
The Reform is absolutely necessary to avoid a serious social and humanitarian problem. With this, the minimum guaranteed pension is expected to be of 0.70% of the General Minimum Wage, which covers the Minimum Well-being Income.
An increase in contributions becomes mandatory to be able to provide pensions to the workers in the mid-term, taking into account that we are entering into the stage of old age of our population. We have ceased to be a country of young people and have become a country of old people who require a pension to live.
We remain at your service for any clarification in relation to this note.