Pension Reforms Could Strain Public Finances: IMCO

After the announcement of various reforms presented by President López Obrador, Mexico’s Institute for Competitiveness (IMCO) published an analysis on the proposal to modify the pension scheme in the country. Describing the reforms as fiscally questionable, IMCO urges lawmakers to engage in open dialogue to address concerns.

Key points of the reform include lowering the age for claiming a non-contributory pension from 68 to 65 years. This pension would be funded by the treasury, under the Pensions for the Well-Being of the Elderly (PBPAM) program. It also mandates the government to ensure pensions match workers' last base contribution salary, up to an amount equivalent to the average salary of Mexican Social Security Institute (IMSS) affiliates, MX$16,777.68 (US$979.31). To finance this, the Ministry of Finance will establish a Pension Fund for Well-Being in the Bank of Mexico, funded by government contributions from various sources.

IMCO warns that these reforms would burden the Mexican State with a contingent liability growing with the elderly population, estimated to cost MX$2.08 billion by 2050, a 138.5% increase from 2025. The institute criticizes the reliance on non-recurring state income to finance the fund, highlighting its vulnerability to fluctuations. This commitment made by the State would add strain to public finances at a critical juncture.

Growing pension spending, coupled with limited resources, could impede economic growth and widen intergenerational inequalities, affecting various sectors of society. IMCO advocates for targeted benefits under the PBPAM program to reduce its cost to the treasury and proposes a fiscal reform to ensure pension spending sustainability. It emphasizes the need for a fiscal strategy generating regular income to finance pensions without jeopardizing public finances.