This is positive news for Mexico in the midst of so much economic pessimism.
This year, our country registered a spectacular rebound in the Global Pension Index.
The note is that Mexico was the country that increased the most points and positions in this indexcompared to last year.
In this way, our nation went from a global score of 49.0 in 2021 to levels of 56.1 this year.
This rebound placed the country in 29th place out of 44which compares favorably to ranking 37th out of 43 last year.
Mexico rebounded 8 places from one year to the next, the greatest advance for any country in said indicator.
This good news about the spectacular recovery of the pension system in Mexico, it comes right at one of the lowest moments for our systemwith historical losses derived from the escalation of interest rates carried out by the central bank, together with practically the rest of the world.
The 2020 reform, key for the following decades
The 2022 Mercer Global Pension Index, in collaboration with the CFA Institute, analyzes and rates the pension systems of different countries around the world. Among them, Mexico.
This index is published annually and is the most prestigious report for the analysis of pension systems around the world. It is divided into three main subscripts:
● Adequacy: measures how good are the income and benefits provided by the pension system.
● Sustainability: calculates how viable it is to maintain each of the pension systems in the long term.
● Integrity: rates the quality of regulation and administration of private pension systems and plans, as well as communication to account holders.
As we already pointed out, Mexico is the country that increased the most points compared to last year: we went from a global score of 49.0 in 2021 to 56.1 in 2022. In general, a very good advance.
The big question is: what caused this uptick?
The report answers it unambiguously. This boost in the ranking for the Mexican pension market was due to to the increase in the projected net replacement rate of people with incomes of up to 4 minimum wages (approximately 21 thousand pesos), as a consequence of the pension reform approved in 2020, basically consisting of an increase in the mandatory percentage of contribution for retirement, a factor that will increase the amount of expected pensions; this had a positive impact on the adequacy of the Afores.
It was precisely in the Adequacy sub-index where Mexico particularly improved this year.
In the Mercer Index, the sustainability of the national pension system also improved, although it had a discreet increase
In this sense, the pension reform had an impact both for and against because, on the one hand, mandatory contributions to Afores will increase from 6.5% to 15% in some cases; but, on the other hand, the weeks needed to obtain a pension also decreased (from 1,250 to 750 in 2021, and will reach 1,000 in 2030).
However, it seems that the report also takes the changes in the reform as positive for its durability in the following decades.
the big earring
Mercer’s report also notes the great pending in our national systemwhich is at the same time a problem of the economy.
“The integrity of the Mexican pension system continues to be the great pending account: There is still a high rate of informality in the country and communication with account holders of the Retirement Savings System continues to be below the world average. Mexico obtained the third worst rating in the ranking in this area in 2022″ states the report.
To improve, some of the main recommendations of the study for the Mexican pension system were:
a) Increase the required communication from pension plan administrators to account holders
b) Make that at least part of the resources of private pension plans must be taken as a flow (instead of total withdrawal).
c) Increase retirement savings coverage among people who do not contribute to the public pension system (that is, to the IMSS).
Mercer also reaffirms the need to improve the coverage and quality of options for retirement savings in Mexicobefore which the great option is the scheme of Personal Retirement Plans.
We are on the right path
This report, which contains some of the most positive news that Mexico has received this year and perhaps in several, makes it clear that when things are done with common sensewith figures and real data, and with knowledge of the facts, there are good results.
For years we knew that the great problem of our pension system was the tiny contribution rates (to call them in some way), to the system.
It was enough to review the contribution rate and increase it in any way, to start seeing results. It was just common sense.
For this reason, at a time when disabilities bring to light other intentions for our pension system, the spectacular rise of our country in the most prestigious Index of the global pension system makes it clear that the path is the right one, although it is long because pensions in Mexico will not improve overnight, especially after so many years in which political interests were subordinated to the common good.
Hopefully this news will make you abandon the idea of wanting to “review” something that is clearly on the right track.
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