NCPA - National Center for Policy Analysis

Mexico Should Go Further On Pension Reform

July 9, 1999

Since Mexico switched to a private pension system two years ago, about 14.5 million workers have opened their own pension savings accounts. From early indications the plan has been highly successful.

  • Savings invested in pension accounts already amount to nearly $15 billion and are expected to grow to $25 billion by the end of next year.
  • By 2015, they should total $138 billion.
  • The government plans to relax investment restrictions that require administrators to invest a minimum of 65 percent of workers' savings in government instruments.
  • And they plan to allow private pension fund managers to invest in more than one fund -- with varying degrees of risk.

Experts say these reforms are on the right track, but they don't go far enough. A restriction against investing abroad should be lifted, they say. Also, the requirement to invest in government bonds is at odds with the notion of pension privatization.

International diversification would reduce risk and help preserve the purchasing power of workers' savings in case of inflation or a sharp depreciation of the currency.

Source: L. Jacobo Rodriguez (Cato Institute), "Time to Reform Mexico's Private Pension," Wall Street Journal, July 9, 1999.

 

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