Afores Register Maximum Capital Gains, Withdrawals In April 2020

Very much in line with the rest of the economy, Afores have been impacted by the current COVID-19 pandemic. More than an impact in performance, in April Afores registered withdrawals of MX$1.59 billion (US$67.3 million), a 90 percent increase from what they had registered in April 2019.

Given that Afores manage individuals’ money that is intended as savings for retirement, there are provisions that allow individuals to withdraw money in special circumstances such as unemployment. In April alone, unemployment-driven withdrawals accounted to MX$1.59 billion (US$67.3 million). However, between January and April 2020, Afores have registered a total withdrawal of MX$5.12 billion (US$216.9 million), representing a 46 percent annual increase compared to 2019.

According to experts, withdrawals come as no surprise, specially when analyzing the number of formal jobs that have been lost since the COVID-19 crisis started. In April alone, IMSS registered the loss of 555,000 formal jobs, surpassing by far the number of employments created in 2019, which stands at 342,077 and represented the lowest result in employment generation since 2009.  “At the end of the day, this loss of employment is the highest we have seen since 1997. It was a regrettable withdrawal (of capital) since many people live paycheck to paycheck and do not have the savings capability to survive without an income. Thus, they have to turn to their Afores,” says Luis Gonzalí, Vice President and Senior Portfolio Manager of Franklin Templeton.

According to data from CONSAR, Coppel was the Afore that registered the most unemployment withdrawals, followed by XXI Banorte. Meanwhile, PensionISSSTE is the Afore where the lowest number of resources were withdrawn. The problem for Afores in the near future is related to liquidity. According to experts, including Moody’s, Afores could face in the short term a lack of cash given the increase in withdrawals.

Despite the current COVID-19 crisis, Afores have had a positive performance. During April 2020, Afores registered capital gains of MX$144.44 billion (US$6.12 billion), one of the highest results registered since 1997 when the system was created. Moreover, between January and February 2020, Afores registered a MX$14.35 billion (US$607.8 million) capital gain. Though in March Afores registered a historic loss of MX$156 billion (US$6.61 billion), April brought new light. Consar said that the recovery registered in April is mainly the result of the economic reactivation of China, the countercyclical measures implemented by the main economic powers, the reduction of Banxico’s interest rates and the liquidity injection Banxico provided the Mexican financial system a few weeks ago.

“This confirms that during the financial turbulence episodes, Afores maintain invested workers’ savings with a long-term vision in assets that aim to maximize retirement funds,” said Consar.