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OECD Reviews of Pension Systems: Mexico

image of OECD Reviews of Pension Systems: Mexico

This review assesses the Mexican pension system according to the OECD best practices and guidelines, and draws on international experiences and examples to make recommendations on how to improve it. It provides an international perspective on Mexico’s retirement income provision and a short and focused review of the Mexican pension system. The review covers all components of the pension system: public and private pension provision for public and private-sector workers. It provides recommendations, using OECD’s best practices in pension design, on how to improve the Mexican pension system and thus ameliorate the retirement income that people may receive from the pension system.

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Smoothing the transition period and increasing pension contributions in Mexico

The sharp drop in pension benefits to be expected after the transition period from the old defined benefit (DB) system to the new defined contribution (DC) system may lead to disillusionment with the new DC pension system. This sharp drop is the result of low contribution rates, which were set at levels similar to those existing before the reform, and high promises to transitional workers based on the old DB formula. In this context, people with similar labour histories separated by a few months would have drastically different pension benefits. Moreover, the low coverage rates and contribution periods compound this problem. This chapter explains how this situation comes about and presents alternatives to smooth-out the transition period. The chapter also discusses approaches to increase coverage, contribution levels and contribution periods.

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