CCE Pensions Proposal 90 Percent Complete: Minister of Finance
Home > Finance & Fintech > Article

CCE Pensions Proposal 90 Percent Complete: Minister of Finance

Photo by:   Anya, Pixabay
Share it!
Peter Appleby By Peter Appleby | Journalist and Industry Analyst - Mon, 06/22/2020 - 15:24

Minister of Finance Arturo Herrera has announced that a proposal to reform the pensions system, undertaken in partnership with the Business Coordinating Council (CCE), is “90 percent complete” reports El Economista.

The minister’s announcement comes during an ongoing debate generated by the suggestion from MORENA Deputy Edelmiro Santiago Santos Díaz that the pensions system, known commonly as Afore, should be under the control of the Welfare Bank (Banco del Bienestar). Afore funds are currently managed by private institutions like Principal, as well as public institutions like PensionISSSTE.

According to Herrera, discussions between the government and the CCE have been ongoing since the beginning of the year with a “great deal of discretion.” The proposal is, says Herrera, “extraordinarily constructive.”

CCE’s involvement is perhaps surprising. A pro-business group that considers its role to be “to promote the free market” and with alliances with some of the country’s largest companies, CCE has had a turbulent relationship with the López Obrador administration. One point of tension has been the government’s intention to collect taxes owed to SAT by 15 of the country’s largest companies, totaling some MX$50 billion (approx. US$2.2 billion).

In April, CCE head Carlos Salazar Lomelín said that President Andrés Manuel López Obrador’s intentions would “violate the law,” though some companies have already paid around MX$30 billion (US$1.3 billion) to SAT.

However, this reform project will be based on ways to strengthen Afores and reform the current system, which most agree does not achieve the intended goal of securing the financial resources needed for retirees.

Currently, the “non-contributary” government retirement fund is insufficient to meet the needs of most. Traditional government pension schemes include a final salary plan, which takes the number of years a person has worked and multiplies it by the salary being earned at retirement. According to El Economista, Minister Herrera explained that the reform will give workers a pension that is not greater than 30 percent of their last salary.

Raymundo Tenorio told the paper that workers’ contributions must also be increased because the current level cannot build up enough funds to provide for most people’s retirements. He noted that since 1997, when the last pensions reform was made, workers contribute only 1.125 percent of their salaries, while companies give 5.15 percent and the government 0.225 percent, making 6.5 percent in total.

However, as President of the Mexican Association of Afores (AMAFORE) Bernardo González told Mexico Business News last month, the reform to the pensions systems, while needed, is not easy. The large informal job market means tens of millions of Mexicans are not officially registered in pension schemes and even for those that are, low wages are a barrier to higher mandatory savings. These increases are also facing resistance from several actors. First are unions that say workers earn very little and cannot provide more money from their wages for long-term savings. The government says that it cannot contribute more to workers’ savings since it has several budgetary pressures. “Businesses tend to contribute the most to workers’ savings,” said González.

That said, many Mexicans have been increasing their retirement savings recently. Afore values grew to MX$102.49 billion (some US$4.49 billion) in May, a new record despite the economic hardship and job losses Mexico is feeling from the COVID-19 crisis.

Photo by:   Anya, Pixabay

You May Like

Most popular

Newsletter