Complementary pensions (Mandatory)
2007: Law of the Institute for Security and Social Services for State Workers (ISSSTE Law) (last amended on April 24, 2016); regulates coverage, contributions to the defined contribution mandatory pension system for Federal employees, and provides transition reforms to the old defined benefit system.
1999: Law for the Protection and Defence of Users of Financial Services (last amended on November 15, 2016); creates the National Commission for the Protection and Defence of Users of Financial Services (Comisión Nacional para la Defensa de los Usuarios de Servicios Financieros - CONDUSEF) to respond and resolve any inquiries or claims that are presented to it, to conduct the necessary conciliation procedures and to offer guidance and legal advice to users in any dispute brought to court by them against financial institutions.
1996: Rules of the Retirement Savings System Law (last amended on August 24, 2009); specifies some of the requirements defined in the Retirement Savings System Law.
1996: Retirement Savings System Law (last amended on January 10, 2014); defines the structure and function of the National Commission for the Retirement Savings System (Comisión Nacional del Sistema de Ahorro para el Retiro - CONSAR), institution that regulates and supervises the Retirement Funds Managers (Administradoras de Fondos para el Retiro - AFORE) and the Investment Funds Specialized in Retirement Savings (Sociedades de Inversión Especializadas de Fondos para el Retiro - SIEFORES).
1995: Social Security Law or IMSS Law (entry into force on 1997, last amended on November 12, 2015); establishes the mandatory defined contribution pension scheme for private-sector employees, regulates coverage, contributions and the relationship between the old publicly-managed social security scheme and the mandatory private pension scheme.
1972: Law of the National Workers Housing Fund Institute (last amended on April 27, 2016); regulates the National Workers Housing Fund Institute. The purpose of this agency is to administer the resources of the National Housing Fund in order to establish and operate a mortgage system for workers to obtain accessible and sufficient lending to purchase a house, as well as to build, repair, expand and improve their homes or pay off the liabilities taken on performing such actions.
Additionally, CONSAR specifies some of the secondary regulations concerning: operational aspects of AFORE, financial statements of the SIERFORES, investment regime of the SIEFORES, investment indicators, disclosure of information to the public, AFOREs´ sales force, fees charged, regulatory controllers, among other issues.
Mexico's three-pillar pension system is described as follows:
The pension for the elderly (Pensión para Adultos Mayores) is a means-tested noncontributory safety net program funded by the federal budget. It covers people aged 65 years and older who do not receive and old-age pension or disability higher than MX 1,092 per month.
- Retirement Savings System (SAR), mandatory defined contribution fully funded system with individual accounts: employees affiliated to the IMSS (private sector) or the ISSSTE (public sector).
- Defined benefit (DB): transitional workers, especial pension schemes for certain public-sector employees and state universities.
- Voluntary Savings
- Individual and occupational voluntary pension plans.
The main component of the Mexican pension system is the Retirement Savings System (SAR); this defined contribution system comprises two social security schemes:
1. Mandatory private sector system: The Mexican Institute of Social Security (Instituto Mexicano del Seguro Social - IMSS) and the National Workers Housing Fund Institute (Instituto del Fondo Nacional de la Vivienda para los Trabajadores - INFONAVIT) provide health, pension and housing services respectively for private-sector workers.
2. Mandatory public sector system: The Institute for Security and Social Services for State Workers (Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado - ISSSTE) and the Housing Fund of the Institute for Security and Social Services for State Workers (Fondo para la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado - FOVISSSTE) provide health, pension and housing services respectively for public-sector workers.
Formal sector employees must be enrolled to one of the abovementioned institutions (i.e., IMSS or ISSTE). This enrolment makes the formal-sector employees eligible to select any AFORE of their choice. Additionally, the AFORE scheme is open to all eligible people who enroll voluntarily to the system.
The individual pension account is composed on four elements: the bi-monthly worker-employer contributions for retirement, old age, and severance at old age; the Federal Government's contributions; the voluntary contributions made by the worker and/or his or her employer, and the returns on the total of the previous contributions. In addition, the individual account keeps accounting information of the employer contributions to the housing sub-account.
The AFORES charge fees, which are deducted from the workers' personal accounts. In case of marriage or temporary unemployment, workers may make partial withdrawals from their individual accounts.
Under both schemes, each individual retirement account is composed of three compulsory sub-accounts:
a) The retirement sub-account (Subcuenta de retiro, Cesantía en Edad Avanzada y Vejez, RCV): In this sub-account, workers, employers and the government make mandatory contributions to cover retirement insurance, severance at old-age and old-age;
b) Housing sub-account. This sub-account comprises the mandatory contributions that employers make to the housing fund managed by INFONAVIT or FOVISSSTE, on behalf of their workers. In case the worker obtains a loan from the housing fund institute, the resources in the sub-account will be applied to pay the debt; if the worker does not take out a loan during his/her working life, the housing institute will transfer to the AFORE the resources to supplement the employee´s pension;
c) Voluntary contributions sub-account. In this sub-account, the worker or employer freely decides to contribute in order to increase the balance in the employee's individual account.
Any employee (in the formal or informal sector) can make four types of voluntary contributions into their individual accounts as follows:
1) Short-term voluntary contributions. The worker makes a contribution and he/she has the option to withdraw partially or entirely the balance account of his/her voluntary contributions before his/her retirement. The minimum period to be hold these contributions in the individual account is from two to six months after being made, depending on the AFORE;
2) Complementary contributions to individual retirement accounts. These contributions can only be withdrawn at retirement as a lump sum or can be supplemented to worker's pension, and may be deducted from income tax up to five times the minimum annual salary or 10% of the annual income.
3) Long-term voluntary contributions with a long-term investment perspective. These contributions can only be withdrawn at the retirement age or in the event or disability or incapacity for remunerated work. They may be deducted from taxable income on the same way as the complementary retirement contributions;
4) Contributions to special "savings for retirement" accounts. These contributions allow the deferral of tax payments until their withdrawal, which can be made after at least five years have elapsed from the date of the voluntary contribution. The maximum annual amount of contributions qualifying for tax exemption is MXN $152,000.
Private-sector employees affiliated to the IMSS
This Defined Contribution (DC) scheme has existed since July 1997 after the amendment of the Social Security Law. The scheme applies to the private sector workers who are affiliated to the IMSS. Vested liabilities were recognised to the "transitional workers".
The government guarantees that all enrollees who contribute 1,250 weeks or more weeks to the system will retire with at least a lifetime annuity equal to the minimum wage (MW) as of July 1997, adjusted to the Consumer Price Index.
The guaranteed pension, to both transitional and "new-generation" workers, is provided by the Federal government in the event that the value of the worker's capitalized savings in his/her individual retirement account balance is not sufficient to finance the minimum pension. In this case, the Federal government contribution will be equal to the difference between the guaranteed pension and the funds accumulated in employee´s individual retirement account.
Since the reform of 1997, the benefits under the new system fall into two groups: benefits to new-generation workers and benefits to transitional employees.
New workers are defined as who started working and making contributions to the system after July 1, 1997. Benefits consist of the accumulated balances in their individual retirement accounts managed by the AFOREs, plus any remaining balance in the housing sub-account managed by INFONAVIT, or the guaranteed minimum pension under the new system. At retirement, workers will choose between programmed withdrawals provided by the AFORE of their choice and an annuity provided by an insurance company.
Private-sector workers affiliated to the IMSS have the possibility to change AFORE under certain circumstances as specified by the Mexican pension regulator (CONSAR). If a worker does not choose an AFORE, the SAR Law stipulates that his/her individual account must be assigned, on a temporary basis, to one of the AFORE that has achieved the largest net returns over a predetermined period. These workers are known as "assigned workers" to distinguish them from the rest of the workers affiliated to the IMSS that have made an active choice of an AFORE.
The total employee, employer and government contribution to the retirement sub-account is 6.5% of salary. Contributions are based on the employee's basic salary for contributions, up to a ceiling of 25 times the minimum wage. The government supplements the total contribution with a social contribution called the social quota (cuota social) to support affiliates and the thus increase the final account balance. This social quota depends on the salary level. It is provided for each day of contribution and is updated quarterly in line with inflation.
Transitional workers in the private sector are those employees who were working and contributing to the PAYG system in place before 1 July 1997. Although these workers began contributing to their new mandatory individual retirement account after this date, they retained the right to have their pension benefits at retirement calculated using the old DB formula. A lifetime switch option allows transitional generation workers to choose at retirement the higher of the acquired benefits under the old PAYG DB system and the accumulated balances in their individual retirement accounts under the new funded DC system. If they choose to receive benefits according to the old DB rules, some of the assets accumulated in the individual retirement account are transferred to the federal government to pay the DB benefits, while the rest of the assets (potentially accumulated in different accounts, including SAR IMSS 1992, INFONAVIT 1992, the retirement subaccount, INFONAVIT 1997, and voluntary contributions) are paid as a lump sum.
Public-sector employees affiliated to the ISSSTE
Like the 1997 Social Security Law, the new ISSSTE Law modified the funding scheme from a PAYG to DC scheme. The amendments groups the 21 branches of insurances, services and benefits contemplated in the old Law into four branches similar to those established in the 1997 Social Security Law (and a section on social and cultural services): retirement, unemployment among older workers and old age; invalidity and life; occupational risks, and health. Workers affiliated to the ISSSTE are now required to have an individual account in the AFORE managed by ISSSTE (PENSIONISSSTE) or any other AFORE. Individual accounts are funded by contributions from the employee, employer (state departments and related bodies) and the Federal government contributions. These contributions are deposited in individual accounts through SIEFORES.
The total employee and employer contribution to the retirement sub-account is 11.3% of salary. Contributions are based on the employee's basic salary for contributions, up to a ceiling of 10 times the minimum wage. The government supplements the total contribution with a flat-rate social quota. This amount is updated quarterly in accordance with the National Consumer Price Index. It is paid for each day of contribution for workers earning less than 15 times the minimum wage.
The new ISSSTE Law provides a portability scheme for the transfer of savings accumulated under the ISSSTE scheme to the new IMSS scheme, and vice versa, when workers switch jobs between the public and private sectors.
All public-sector workers who were ISSSTE affiliates at the time the ISSSTE Law was approved in 2007 had the right to choose to switch to the new funded DC scheme or to remain in the old PAYG DB plan. The affiliates had a time limit of six months to choose between these two options, starting 1 January 2008.
The ISSSTE affiliates who chose to move to the new DC system (only 14.2%) received a "recognition bond", paid by the federal government, acknowledging their rights for the periods of time in which they made contributions prior to the reform. This recognition bond was credited in the individual account of the affiliates, redeemable only when close to retirement. Those who had no account in an AFORE at the time of the reform were automatically registered with PensionISSSTE for the first three years. That period ended in December 2011. Since then, workers can transfer their individual accounts to any AFORE of their choice or stay in PensionISSSTE. Since that same date, PensionISSSTE is also able to receive the transfers of individual accounts of private sector workers or self-employed workers.
New rules regarding the minimum retirement age and the contribution rate apply to ISSSTE affiliates who decided to remain in the old DB scheme (85.8%): the minimum retirement age is being increased gradually from 50 to 60 for men and from 48 to 58 for women by 2028; the contribution rate of workers for retirement increased gradually from 3.5% to 6.125% of the wage contribution base over the six years following the reform. In addition, contributions are directly paid to the ISSSTE to finance the PAYG system, except the 2% employer contribution for retirement insurance, which is deposited in an individual retirement account managed exclusively by PensionISSSTE.
The Retirement Savings System Law grants CONSAR broad powers to set and enforce rules and standards for all aspects of operation of the pension system. CONSAR has full supervisory authority over AFORES and SIEFORES, as well as supervisory authority over other participants in the pension system (such as banks and insurance companies) to the extent the activities of such entities involve the pension system.
CONSAR is empowered to issue regulations, conduct examinations, impose fines and sanctions and recommend criminal prosecutions. In the event that irregularities are uncovered in the operations of any entity subject to CONSAR supervision (including AFOREs and SIEFOREs), CONSAR is authorized to carry out an administrative or management intervention of such entity. CONSAR may revoke the authorization of any AFORE or SIEFORE found to be not complying with the Retirement Savings System Law or CONSAR´s secondary regulations.
AFORE is the name to describe a private pension fund manager in Mexico. The IMSS and ISSSTE collect contributions and allocate them to workers' individual accounts, but it is the AFOREs that manage these accounts. The AFOREs place contributions in investment funds called SIEFORES. Thus, AFORES manage individual retirement accounts, while SIEFOREs invest the assets generated in those accounts. Workers can choose their AFORE and are free to switch between them. AFORES must have five basic SIEFORES for investing the compulsory savings, and they may have additional SIEFORES for voluntary contributions and occupational pension plans. The family of basic SIEFORES follows an age-risk tolerance default criterion.
The ISSSTE Law established the creation of the National Pension Fund for Federal Government Employees (PENSIONISSSTE) as an ISSSTE decentralized public agency. For its operation, administration, and functioning, this fund is subject to the regulation and supervision of the CONSAR, and must comply with the provisions of the Retirement Savings System Law. PENSIONISSSTE operates as an AFORE, and it is financed in the same way by charging administrative fees for managing the affiliates accounts.
As of May 2017 there are 11 AFORES and 65 SIEFORES (basic and additional) that operate in Mexico. Some important aspects that CONSAR supervises are:
a) The establishment of AFORES and SIEFORES requires the authorization of CONSAR, which may grant or deny authorization at its own discretion after examining the business plan, shareholding, systems, control and management of the firm, and with the opinion of the Ministry of Finance (Secretaría de Hacienda y Crédito Público - SHCP). CONSAR is empowered to revoke the authorization of an AFORE or SIEFORE that fails to meet the standards set forth in law and regulations.
b) The Retirement Savings System Law establishes strict limitations on permissible transactions between AFORES and related financial institutions and issuers. CONSAR recognizes that given that a large percentage of pension contributions may ultimately be managed by AFORES, which are subsidiaries of financial groups and/or affiliated with other financial institutions, strict supervision and enforcement of conflict of interest rules will be required to build public confidence in the system.
c) CONSAR establishes a 20% limit on the total individual accounts that may be managed by any single AFORE.
d) The Retirement Savings System Law provides that the board of directors of each AFORE must be composed at least with five members (two must be independent members), and must have a compliance officer, who is responsible for ensuring compliance with statutory requirements and internal rules through the establishment of a self-regulatory process. AFORES must provide sufficient resources to compliance officers to enable them to perform their functions adequately. The compliance officer must attend all meetings of the board of directors. The independent members of the board of directors and the compliance officer of each AFORE must be approved by the Consulting and Vigilance Committee of CONSAR on the basis of the moral integrity and technical management capacity of the nominees.
e) AFORES charge commissions which are deducted from the workers' personal accounts. CONSAR has issued regulations which authorize each AFORE to set management fees based on a percentage of assets under management.
The Retirement Savings System Law provides that the Government Board of CONSAR, every year in the month of December, must approve the fees proposed by the AFORES, that they will charge during the following year.
The authorized commissions for 2017 are as follows:
|AFORE (Annual percentage over AuM) |
| Profuturo GNP||1.03|
An important element of the pension system is the centralized national database for all the information related to the pension fund system. This database known as National Database for the Retirement System (BDNSAR) contains information on each individual and the fund manager he/she is affiliated to. The primary function of this database is the identification of the individual accounts with each AFORE, the control of the possible switches from pension manager chosen by the enrollees and the distribution of the periodic money flow (e.g., social insurance contributions) to each account.
The database is property of the Federal Government and it is operated by a private entity called PROCESAR. This company is the only one authorized by CONSAR to operate the database. One of the most important tasks of PROCESAR is to help in the unification of accounts, the purpose is that each individual affiliate should not have more than one account in the system.
Enforcement of affiliation
Sources of funds
Other sources of funds
Methods of Financing
Preservation, portability, transferability
Benefit qualifying conditions
Withdrawal of funds before retirement
Benefit structure / formula
Benefit qualifying conditions
Benefit qualifying conditions
Protection of Assets
Financial and Technical Requirements / Reporting
Standards for service providers
Winding up / Merger and acquisition
Bankruptcy: Insolvency Insurance / Compensation Fund
Disclosure of information / Individual action
Taxation of member contributions
Taxation of employer contributions
Taxation of investment income
Taxation of benefits
- carry out on-site inspections (inspectors must be provided with all records, books and other information they wish to obtain);
- require AFORES to provide all information necessary for effective supervision;
- issue orders to AFORES to cease violations of statutory requirements;
- remove the authorization of an AFORE (which implies that it must be wound up).
If the CONSAR finds irregularities in the management of an AFORE which may endanger its financial safety and the interests of members, it may declare a case of general intervention and appoint a general administrator to take over the administration.
According to the Retirement Savings Systems Law, CONSAR has three governing bodies, which interact frequently with other supervisory agencies and are:
I. Governing Board.
II. Presidency of CONSAR.
III. The Consulting and Oversight Committee.
I. Governing Board
Some of the main purposes of this Board, among others, are to approve the investment regime of the pension funds, to authorize the operation of the AFOREs and SIEFOREs, and to approve the AFOREs fees regime for their services in the management and investment of the retirement accounts of the employees.
The Governing Board is integrated by the Minister of Finance; the President of CONSAR, two Vice-Presidents of CONSAR, and 13 vocals, including representatives of other supervisory agencies:
- The Minister of Labor;
- The Central Bank Governor;
- The Undersecretary of Treasury;
- The General Director of IMSS;
- The General Director of INFONAVIT;
- The General Director of ISSSTE;
- The President of the CNSF;
- The President of the CNBV;
- 4 representatives of workers, and
- 1 representative of employers.
Chart 1: Members of the CONSAR´s Government Board
| Government Branch|| Employee Branch|| Employer Branch|
|Ministry of Finance|
| Trade Unions|
|Employers Representatives (1) |
| Financial Authorities (5):|
BANXICO, CNSF, CNBV, CONSAR, SHCP
| Confederation of Mexican Workers (CTM) (2)|| National Confederation of Industrial Chambers (CONCAMIN)|
| Labour Authorities and Social Security and Housing Institutes (4)|| Regional Confederation of Mexican Workers (CROM)|
| Revolutionary Confederation of Workers and Peasants (CROC)|
According to the article 9 of the Retirement Savings Systems Law, the Governing Board has bimestrial sessions along the year, and can also meet any time the President of CONSAR calls for extraordinary sessions. It is worth mentioning that topics and issues to be discussed the meetings are presented to the members of the Board in advance.
The Head of Ministry of Finance designates the President of CONSAR. The President is the highest administrative authority of CONSAR and exercises the powers granted by the Retirement Savings System Law and those delegated by the Governing Board. His/her obligations, among others, are to present to the Governing Board a semiannual report of the situation of the retirement savings systems and an annual report on the work done by CONSAR, and to inform the Board about all matters concerning the operation of systems of retirement savings, proposing the appropriate measures when it considers the facts or circumstances affecting the proper functioning of the DC pension system.
III. Consulting and Oversight Committee (COC)
Some of the main purposes of the COC, among others, are to be acknowledged of the policy of criteria followed by the president of CONSAR in all the matters concerning the Retirement and Savings System. The Committee also supervises the development of the Retirement and Savings System in order to prevent possible conflict of interests and antitrust practices. The COC issues opinion regarding the investment regime of the pension funds, the regulation of fees charged by the AFOREs and the regulation of AFOREs advertisement. Also, it approves the compliance officers and independent directors of the AFOREs and SIEFOREs.
According to article 15th of the Retirement Savings System Law, the COC is integrated by 19 members, including representatives of other supervisory agencies:
- The President of CONSAR;
- 1 representative of the SHCP;
- 1 representative of the Ministry of Labor;
- 1 representative of the IMSS;
- 1 representative of the ISSSTE;
- 1 representative of INFONAVIT;
- 1 representative of the Central Bank;
- 6 representatives of workers, and
- 6 representative of employers.
The composition of the 6 workers' representation is:
- 3 representatives from the Mexican Workers Confederation (CTM).
- 1 representative from the Revolutionary Confederation of Workers and Farmers (CROC).
- 1 representative from the Mexican Regional Workers Confederation (CROM).
- 1 representative from the Federate Union of Workers at State Service (FSTSE). On the other hand, the composition of the 6 employers' representation is:
- 1 representative of the Confederation of the Industrial Chambers (CONCAMIN).
- 1 representative of the Confederation of National Chambers of Commerce, Services and Tourism (CONCANACO).
- 1 representative of the Confederation of Employers from the Mexican Republic (COPARMEX).
- 1 representative of the Mexican Association of the Insurance Companies (AMIS).
- 1 representative of the Mexican Bank Association (ABM).
- 1 representative of the Mexican Association of Securitization Intermediaries (AMIB).
Chart 2: Members of Consultative and Oversight Committee (COC)
|Government Branch||Employee Branch||Employer Branch|
| Financial authorities (3)|| Trade Union representatives (6)|| Employers representatives (6)|
|SHCP|| Central Bank||CTM||CTM||CONCAMIN||CONCANACO|
| Labour authorities and social security and housing institutes (4)||CROC||CROM||AMIS||AMIB|
The COC has bimestrial sessions along the year.
CONSAR regulation has established the foundations for close collaboration and technical assistance between several supervisory agencies and other stakeholders. Several social security institutes grant a clear mandate to CONSAR in matters of regulation.
In order to perform the supervision of the participants in the pension system, the Retirement Savings System Law empowers CONSAR to establish the collaboration, by mutual agreement, with other regulatory agencies for the exercise of their supervisory functions. In addition to the above, CONSAR should act as a consultative body of the public agencies, in all matters relating to the pension system, with the exception of the fiscal ones.
Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR) Camino a Sta. Teresa No. 1040, 3er piso
C.P. 14210 México, D.F. México
Tel.: (+52) 55 5955 4762
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