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Lessons from Pension Reform in the Americas$
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Stephen J. Kay and Tapen Sinha

Print publication date: 2007

Print ISBN-13: 9780199226801

Published to Oxford Scholarship Online: January 2008

DOI: 10.1093/acprof:oso/9780199226801.001.0001

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A Decade of Government‐Mandated Privately Run Pensions in Mexico: What Have We Learned? *

A Decade of Government‐Mandated Privately Run Pensions in Mexico: What Have We Learned? *

Chapter:
(p.257) Chapter 10 A Decade of Government‐Mandated Privately Run Pensions in Mexico: What Have We Learned?*
Source:
Lessons from Pension Reform in the Americas
Author(s):

Tapen Sinha

Maria de los Angeles Yañez

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199226801.003.0011

On July 1, 1997, a new privatized pension plan — called the Seguro de Retiro, Cesantía en Edad Avanzada y Vejez (RCV, or Retirement and Old Age Insurance) — took effect in Mexico. This chapter begins with a short description of the new system giving special attention to the cuota social or social quota, and the housing subaccount. It then discusses the coverage issue in the context of the government's claim that higher coverage would be an important advantage of the new system. It looks at the market structure of the pension funds in Mexico and investment portfolios, and tackles the cost structure of running the funds, transition costs, and the cost of the payout phase, noting the inequality between men and women in terms of the future pension payout. Finally, it reviews the conditions that may lead low-income affiliates to fall back on the minimum pension guaranteed by the reform. It shows that the system faces a number of challenges, including a reduction in the ratio of contributors relative to affiliates, high commission charges, and a likelihood that the government will have to support the old-age poor when lower-income individuals retire with insufficient funds in their accounts. On the other hand, the government bond market has deepened, bringing more financial security to the pension system.

Keywords:   Mexico, pension reform, pension system, individual accounts, social quota, housing subaccount, bond market

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