Images courtesy of ISSSTECAM.

SOCIEUX+ in Mexico:

Reforming pensions for increased sustainability of reserve funds

The Mexican social protection system still faces some critical challenges: increasing coverage; equity (regressivity); expansion of resources; and, financial viability. In fact, Mexico has a problem with low coverage and high costs, which also derives from an antiquated system of pensions for workers in the public sector. In the demographic sphere – an issue intrinsically linked to the pension system – Mexico is experiencing an intense and accelerated process of change in the age of its population, moving from a young population to an older one. According to the projections of the National Population Council, in 2015 there were three Mexicans under 15 years old for every one older adult (over 60 years old). However, by 2050 it is expected that this ratio will fall to nearly equal levels by 2050. This has serious ramifications for the federal and local governments, including impacts on the social protection system.

Although all federal entities will experience an ageing of their population, this process will happen at different rates at the state level. The state of Campeche is located in a group of federal entities in full demographic transition, with intermediate fertility and mortality rates. According to the request for technical assistance received by the Instituto de Seguridad y Servicios Sociales de los trabajadores del Estado de Campeche (ISSSTECAM), it is a high priority to guarantee the economic solvency of workers’ benefits now, so that it does not become an extraordinary budgetary burden for the state and/or the federal government in the future.

With this request, SOCIEUX+ has mobilized public experts from France and Spain in the course of two on-site missions. First, experts assessed the legal, technical and financial mechanisms that influence the sustainability of the pension system in Campeche. The resulting report primarily focused on the strategies and actions that were already planned by ISSSTECAM to secure the pension reserve and its sustainability. During this first mission, the experts also handed a compendium of European and international investment frameworks and mechanisms for pension funds to the ISSSTECAM.

As a second step, experts mobilized by SOCIEUX+ translated the technical recommendations and scenarios outlined during the first activity into a draft of a proposed law that would include mechanisms for the protection and transparency of pension reserves, as well as ways to manage pension investments to ensure their medium- and long-term sustainability. ISSTECAM is expected to present this proposal for reform to the Parliament of the State of Campeche before the end of 2018, corresponding with the start of the new legislature.

SOCIEUX+ 2016-15 MEXICO, ACT. 1 & 2 (November 2017 and February 2018).