Mexico: Reforms of state pension law to increase employers’ costs

Mexico: Reforms of state pension law to increase employers’ costs

Changes to Mexico’s pension law, signed by the president on 9 Dec 2020, aim to strengthen the pension system and improve employees’ financial well-being in retirement. The reforms will increase retirement benefits to eligible workers under the Social Security 1997 Law, and will increase the total contribution amounts to levels comparable with other OECD countries. 

The reforms began on 1 Jan 2021, and changes to contribution amounts, and the calculation of, and eligibility for, guaranteed pensions will be phased in over an eight-year period.

Highlights

  • The social security quota for retirement will increase employers’ contributions from 6.5% to 15% by 2030. The increase will be phased in starting in 2023.
  • The increased amount of the Minimum Guaranteed Pension (MGP), aimed at 40%, will be paid to eligible employees.
  • The number of contribution weeks required for MGP eligibility decreased to 750 weeks (equivalent to 15 years of contributions), down from 1,250 weeks, on 1 Jan 2021. However, the minimum number of contribution weeks required for MGP eligibility will increase gradually by 25-week increments to 1,000 weeks (equivalent to 20 years of contributions) in 2031.
  • The amount of commissions charged by pension fund administrators is reduced, effective 1 Jan 2021.

The reforms will result in a three-fold cost increase for employers, depending on the applicable salary structure. Companies should analyze their compensation structures to minimize the cost increases, and consider optimizing the use of private retirement plans to improve their employees’ financial wellness.  

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Fernando Curiel
by Fernando Curiel

Senior Associate, Wealth

Itzel Gonzalez
by Itzel Gonzalez

Associate, Mercer Wealth

Fiona Webster
by Fiona Webster

Principal, Mercer’s Law & Policy Group

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