NCPA - National Center for Policy Analysis

Mexico's Private Pensions

May 11, 1999

Eight Latin nations -- Chile, Peru, Colombia, Argentina, Uruguay, Bolivia, El Salvador and Mexico -- have privatized their pension systems by various means since 1981.

A recent Cato Institute study took a look at Mexico's plan. That nation began changing over in 1995, when it became obvious its retirement system was plagued by "corruption, bureaucratic mismanagement and inefficiency."

  • All workers must deposit 11.5 percent of their monthly income into a private pension savings account -- with additional contributions by employers and the government.
  • Workers who want to save more can also open a voluntary savings account with contributions tax-deductible up to a certain point.
  • The funds are managed by private companies with at least 65 percent of funds invested in government bonds -- although they are forbidden to invest outside Mexico.
  • More than 93 percent of eligible workers have taken advantage of the plan.

With 11.3 million workers enrolled, Mexico already has the largest government-mandated private pension scheme in the world.

Source: L. Jacobo Rodríguez, "In Praise and Criticism of Mexico's Pension Reform," Policy Analysis No. 340, April 14, 1999, Cato Institute, 1000 Massachusetts Avenue, N.W., Washington D.C. 20001, (202) 842-0200; Macroscope, "The Latin American Model?" Investor's Business Daily, May 11, 1999.

 

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