According to the Consar, the fundamental objective of a pension system is to provide economic security to the retired worker who has an income during his life cycle; but they face different risks throughout their working and pension life.
These are not the only objectives of the pension scheme, there are others linked to social welfare, such as reducing poverty conditions in old age, expanding coverage, providing conditions of equity to coexisting generations, achieving an equitable distribution of pensions and promoting gender equality.
These are some risks that you can face as a pensioner. Photo: Pixabay.
By setting all these objectives, risks are reduced, but some of them persist, they are not exclusive to Mexico, since the discussion and reflection around pensions occurs all over the world. For workers, it is important to contemplate them and start planning from a young age what their retirement will be like, what strategies they can implement to save more and that this is reflected in the amount they receive as a pension.
Risks in the working and pension life of a worker
The risks that are indicated for workers who retire are different. Among them are the following.
The risk of insufficient resources. With longevity, the situation may arise that the pension resources are insufficient to cover people’s lives during their life expectancy. For example, in Mexico, in the 1980s, life expectancy was 66.55 years; By 2017, it had risen to nearly 75 years.
The risk of the financial market. This risk refers to the volatility of the financial market as it has a negative impact on the amount of pensions.
The occupational risk. It consists in that the amount of resources accumulated in the pension fund is insufficient even to receive it or that the amount that is received is small.
The risk of high inflation. Although the Bank of Mexico ensures that prices do not rise, there is a risk that inflation reduces the purchasing power of pensions.
The risk of solvency. This risk consists of the fact that the pension provider will find it impossible to meet his pension commitments.
The risk of interest rates, of the annuity. The behavior of interest rates can negatively affect the value of the pension.
The risk of the salary trajectory. This risk refers to the stagnation of the worker’s salary, or even falling when he loses his job.
The risk of public finances. This risk has to do with economic policy, with the possibility that the government cannot fulfill the commitments it has with pensioners and affects them by increasing taxes or reducing their benefits.
The risk of the pensioner falling into poverty as an old man. It may happen that at the time of retirement your pension fund does not allow you to meet your basic needs.
According to Consar and the Organization for Economic Cooperation and Development (OECD), the incidence of these risks in retirement savings is a red flag to seek alternative solutions to problems that are generated, for example, diversifying sources of income. Consar points out that Mexico has diversified the sources of income for the Afores.
Funding sources for pensions in Mexico
The pension benefits derived from the old Defined Benefit schemes that the so-called transition generation still receives (those who contributed before the IMSS, ISSSTE, Pemex, CFE reforms).
The defined contribution pension system known as SAR. The supports granted through non-contributory programs, such as « 65 y más » and other state programs.
The Consar indicates that these schemes are not linked, which makes them inefficient and in some cases duplicates are generated. Protection for the country’s older adults is insufficient.
More information in our Retirement Section.