New ‘final salary’ pensions proposed by Mexico’s president to be capped

By Ana Isabel Martinez

MEXICO CITY (Reuters) – A reform proposed by Mexican President Andres Manuel Lopez Obrador for retirees to have a pension equal to their final salary will come with a cap on monthly payments, according to a document sent to Mexico’s Congress.

The draft plan for employees to receive such generous pensions has morphed into one of the stand-out initiatives of Lopez Obrador’s sweeping reforms that include judicial, electoral, environmental and other changes.

However, the suggestion has raised questions about sustainability and whether Mexico can afford it. Opponents and critics have dismissed the plans as an unrealistic political ploy ahead of the June presidential polls.

The document sent to the Mexican Congress and reviewed by Reuters on Tuesday states the proposal would only be available to those who started contributions to Mexico’s social security institute IMSS after July 1, 1997, as well as those holding accounts with government workers’ social security body, ISSSTE.

But the monthly payments would be capped at 16,777 Mexican pesos ($984.61) and the figure would be adjusted for inflation every year, the document states.

At present, 4.5 million people receive retirement pensions from IMSS in a country of some 126 million inhabitants, while 1.3 million people drawn pensions from ISSSTE.

To fund the proposal, Lopez Obrador suggested the government would create a fund with 64 billion pesos and source money from state governments, while also diverting cash destined for autonomous institutions that he wants to disband.

However, some estimates have suggested the cost of the proposal may be 430 billion pesos in 2025 (1.3% of the GDP) and climb to 2.0% of GDP by 2035, according to Eurasia Group, an international risk consultancy.

The opposition’s line that it would support pensions reforms if it does not harm fiscal stability was a political tactic aimed at shielding themselves from the president’s attacks on the campaign trail, Eurasia Group said in a note to clients on Tuesday.

“It is highly unlikely that opposition parties will support this initiative given its impact on public finances,” the note added.

($1 = 17.0392 Mexican pesos)

Source: Investing.com