The impact of IMSS pensions on Mexico’s public fi-nances

International Journal of Research and Scientific Innovation (IJRSI) | Volume IX, Issue V, May 2022 | ISSN 2321–2705

The impact of IMSS pensions on Mexico’s public fi-nances

José Antonio Villalobos López

Abstract: The importance of the insured members of the Mexi-can Social Security Institute (IMSS) can be appreciated because it has 20.6 million members as of December 2021, which repre-sent 83.5% of formal employment in Mexico. Pensions and re-tirements under the transition regime of IMSS Law 73 (defined benefit) are becoming one of the main problems facing national public finances. The liabilities of the Mexican Social Security Institute (IMSS) in its IMSS-employer modality correspond to the equivalent of 11.9% of the GDP for the year 2021, while those of the IMSS-insurer is 44.1% of the GDP, adding both modalities, they reach 56% of the GDP. According to actuarial calculations, the maximum point of public spending for pensions under the transition regime (defined benefit) will be reached in 2035. The replacement rate of a worker affiliated to the IMSS who contributed under Law 97 (capitalization regime) was only 25%; with the reforms made in December 2020, it is estimated that the replacement rate will reach 60%. By the year 2019, the retirement fund administrators in Chile had resources equiva-lent to 80.8% of GDP; Uruguay 29.1%; Colombia 24%; Peru 22.8%; and Mexico 16.4% of GDP, which is a very low indica-tor compared to Latin American nations.

Keyword: pension; social security; retirement; define benefit; retirement; fund administration

I.INTRODUCTION

This paper analyzes the impact of the pensions of the Mexi-can Social Security Institute (IMSS) on national public finances. It has been recognized for many years that the existence of public resources is always limited in any eco-nomic activity, whether private or public, and in order to achieve social security in Mexico, many more resources are being distributed than were contemplated in previous years in the federal public budget, especially in the area of pensions.
July 1, 2021 marked the 24th anniversary of the 1997 re-forms to the Social Security Law, which makes it necessary to digress and explain what has happened to the workers affiliated to the IMSS in terms of their retirement contribu-tions. Also this year, the first pensions that came out of the IMSS regime of Law 97 began to appear, counting from January 1 to December 15, 2021, with 27,396 workers who accessed their pensions through the Retirement Fund Ad-ministrators (AFORE).
The IMSS reforms in 1997 sought to solve the institution’s financial problems by sharing the risk with the worker through savings in individual accounts, but they achieved this to a very limited extent, and as time went by, problems in pension financing reappeared, As a result, few workers would be able to retire in their old age with decent and acceptable pensions, where the majority would be within the minimum guaranteed pension of one minimum wage, as long as they had had the 1250 weeks required by the So-cial Security Law before the reforms of December 2020.

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