Glows
Perversity: Of great evil that expressly causes harm.
AMLO will propose a Pension Reform to increase its value to 100% of the last salary. Pension systems are not simple schemes and there are basically two models in the world:
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1.- The distribution scheme. During their working life, the worker, the employer and the government contribute to a common fund from which resources are obtained to pay current pensions. In order to pay decent pensions, actuarial studies are carried out to establish contribution amounts, work time and retirement age. These schemes assume that new workers will always enter in a quantity greater than the number of retirees, however, the demographic transition has made them increasingly difficult to finance. In the 50s, life expectancy was 55 years, today it is 75, which means that pensions are paid for more years, in addition, the assumption of a geometrically increasing income of new workers no longer happens, among other factors, due to the reduction in the birth rate and technological advances that have displaced many jobs.
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2.- The individual savings model. In these, contributions from workers, employers and the government are deposited in an individual retirement savings account, generally in entities specialized in the administration and investment of these resources such as AFORES. Unlike pay-as-you-go systems, each worker is the owner of his or her money, which depends on his or her work history and personal savings effort. It is essential to establish the contribution levels of the worker, employer and government, contribution times and retirement age to calculate the payment of reasonable pensions.
In both models, if you want to carry out reforms that increase the amount of the pension, it is essential to INCREASE some or all of the fundamental variables, such as retirement age, contribution amount and contribution time.
These issues are very delicate, because it is difficult for people to agree to extend their time as workers or see their salary reduced by allocating more to their contribution. Likewise, employers must face new labor costs that can affect their competitiveness and governments feel greater pressure on their finances.
Since these reforms are so controversial around the world, the best time is always chosen to carry them out. Therefore, it is striking that the presidential proposal is introduced right on electoral dates and this is where the perversity of the approach is noted. Let’s see why:
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1.- The times. A responsible government would have discussed something so important from the beginning of its administration, since it needs to ensure that it will have sufficient financing sources to cover long-term obligations, for which fiscal reforms are necessary. At the end of the six-year term, the adjustments required to finance pension commitments will fall to the following governments, saving the political wear and tear of raising taxes.
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2.- The resources. National spending on pensions for 2024 will be 2 trillion pesos of the 9 trillion pesos of the federation’s expenditure budget, that is, pensions require 22% of total spending or 5.4% of GDP. It is curious that this year, like never before, the government requested authorization to contract a public debt for 2 billion pesos; it could be said that the pensions will be paid with debt.
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3.- Dimension of the problem. Mexico has a big pension problem, in addition to the two largest institutes (IMSS and ISSSTE), there are many state systems, universities and state companies (CFE and PEMEX), which are in serious difficulties. These social security systems do not even cover 50% of the population. What does López plan to do with the troubled systems and with 50% of the population without a pension?
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4.- Legal route. To reform the pension systems of the IMSS, ISSSTE and parastatals, a constitutional modification is not needed, therefore, a majority of the President’s party would be sufficient. However, there is talk of a constitutional reform that does imply a qualified majority between Morena and allies that, today, does not have one.
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5.- Concurrence with other reforms. In countries where pension reforms are taking place, efforts are made not to contaminate them with other legislative initiatives. It is strange that the President announces a Constitutional Pension Reform and wants to associate it with the initiative to eliminate autonomous bodies. I already see him saying “they don’t want the autonomous bodies to disappear because they don’t want to improve pensions”, which is false, because the budget of these bodies does not cover even 2% of pension spending.
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6.- Financial health of the State. In Mexico, even without a pension reform, there are already serious financial problems that mean there is no room for maneuver. On the one hand, all funds were exhausted, the favorable parity of the peso against the dollar is a temporary phenomenon that will be adjusted in a few months; Furthermore, and more importantly, PEMEX’s debt is already unsustainable, at any moment its bonds will be declared junk by the rating agencies and that will have a strong impact on the country, making our debts more expensive.
President of the Mexican Academy of Education