In brief

On 16 December 2020, amendments to the Social Security Law and the Retirement Savings System Law were published in the Federal Official Gazette (Reform). 


Contents

  1. Recommended actions
  2. In detail 

We have highlighted the most relevant aspects of the Reform below:

  • Effective 1 January 2021, the required number of weeks of contributions to access the advance and old age retirement pensions are reduced from 1250 to 750 weeks, which will be increased by 25 weeks per year, until reaching 1000 weeks in 2031.
  • For the period from 1 January 2021 to 31 December 2022, the contributions to the advance and old age retirement branch of Insurance will remain at 3.15% of the employee's quotation base salary. As of 1 January 2023, the employer's contribution to the old age and retirement branch of Insurance will increase progressively until 2030.
  • Government contributions to the old age and retirement branch of Insurance are amended and redistributed in favor of employees with lower income.
  • Conditions to access the guaranteed pension are amended by considering the employee's average salary, weeks of contributions and age of retirement.
  • The guaranteed pension amount is increased.
  • Fees by Retirement Fund Administrators (AFORES) will be capped at an international market value.

Recommended actions

Employers should take the following actions:

  • identify the economic impact resulting from the increase of the employer's contribution to the advanced and old age retirement branch of Insurance
  • inform employees about the change to the required weeks of contributions to access a pension and
  • analyze the impact of the Reform on complementary pensions and retirement benefits granted by the company to its employees through private pension plans or collective bargaining agreements, in addition to those granted by the Social Security Law.

In detail 

As of 2021, employees who have made 750 weeks of contributions to the Mexican Social Security Institute (IMSS) will be entitled to a pension for advance age retirement at the age of 60, and an old age retirement pension at the age of 65. 

Employees will maintain the possibility of retirement before reaching 60 years of age (advanced age retirement), and 65 years (old age retirement), as long as the pension calculated in the annuity system is greater than 30% of the guaranteed pension (corresponding to the weeks of contributions, quotation base salary and at the age of 60 years).  

In the retirement branch of Insurance, the employer's contribution will remain at 2% of the quotation base salary.

Effective 1 January 2023, the employer's contributions to the advanced and old age retirement branch of Insurance will be changed as follows: 

Contribution's base wage 2023 2024 2025 2026 2027 2028 2029 2030
1.0 MW1 3.150% 3.150% 3.150% 3.150% 3.150% 3.150% 3.150% 3.150%
1.010 MW to 1.50 UMA2 3.281% 3.413% 3.544% 3.676% 3.807% 3.939% 4.070% 4.202%
1.50 to 2.00 UMA 3.575% 4.000% 4.426% 4.851% 5.276% 5.701% 6.126% 6.552%
2.01 to 2.50 UMA 3.751% 4.353% 4.954% 5.556% 6.157% 6.759% 7.360% 7.962%
2.51 to 3.00 UMA 3.869% 4.588% 5.307% 6.026% 6.745% 7.464% 8.183% 8.902%
3.01 to 3.50 UMA 3.953% 4.756% 5.559% 6.361% 7.164% 7.967% 8.770% 9.573%
3.51 to 4.00 UMA 4.016% 4.882% 5.747% 6.613% 7.479% 8.345% 9.211% 10.077%
4.01 UMA or higher 4.241% 5.331% 6.422% 7.513% 8.603% 9.694% 10.784% 11.875%

 

  • The guaranteed pension is increased and ranges from MXP 2,622 to MXP 8,241 per month. The employee's salary used to determine the guaranteed pension and its amount will be updated every February in accordance with the National Consumer Price Index.  
  • The employee or his or her beneficiaries who acquire the right to a pension through a private pension plan or collective bargaining agreement registered and authorized by the National Commission of the Retirement Savings System (CONSAR) will be entitled to receive the pension in a lump sum provided it is greater than 30% of the guaranteed pension.
  • Employees will be able to make withdrawals from the voluntary contributions sub-account at any time (the semi-annual limitation is eliminated). 
  • The right to receive a pension and family allowances will continue, provided the insured party fulfills all eligibility requirements established in the Social Security Law. 
  • Fees by AFORES will now be capped at the average amount of the fees charged in the defined contribution systems in the United States of America, Colombia and Chile.

The Reform became effective on 1 January 2021, with the exception of the provisions related to employers’ contributions, social contribution to the advanced and old age retirement branch of Insurance, and the weeks of contributions required to access the advanced and old age retirement pensions.