Statutory and regulatory framework

Primary laws and regulations

What are the main statutes and regulations relating to pensions and retirement plans?

The Social Security Law is the main regulatory law regarding pensions. Other regulatory laws include the Law on Retirement Savings Systems, in particular, the General Provisions Applicable to Private Pensions, issued by the National Commission for the Retirement Savings System.

Regulatory authorities

What are the primary regulatory authorities and how do they enforce the governing laws?

The primary regulatory authorities are as follows:

  • The Mexican Social Security Institute, which enforces the law by carrying out inspections of the employers and checking all the information regarding the employees’ contributions and salaries, and the work done by the employees. The Institute establishes whether a person has the right to a pension and the amount of the pension.
  • The National Commission for the Retirement Savings System, whose fundamental task is to regulate the Retirement Savings System (SAR) and the Retirement Funds Administrators (AFOREs), which are the institutions that are in charge of managing the retirement funds (those contributed in accordance with the law) and that regulate private pension plans.
Pension taxation

What is the framework for taxation of pensions?

According to article 93(IV) of the Income Tax Law, this type of income is exempt up to a daily amount of 1,209 Mexican pesos (as of 2018).

State pension provisions


What is the state pension system?

The SAR is a system that is regulated by social security laws. It ensures that the contributions of workers, employers and the state are managed through individual accounts, called AFOREs, that are owned by each worker. The purpose of these accounts is to accumulate resources to finance the workers’ pension; each worker affiliated with the Mexican Institute of Social Security or the Institute of Social Security and Services of State Workers has an individual account in which their contributions, those of their employer and those of the government are deposited, as well as the returns that are generated from the investment of resources.

Pension calculation

How is the state pension calculated and what factors may cause the pension to be enhanced or reduced?

The pension is calculated taking into account the amount saved by the worker in the AFORE and the average lifespan. From this calculation, a monthly pension from the saved amount will be paid over the rest of his or her life.

To enhance the pension, each worker can make voluntary contributions to the AFORE.

The resources accumulated are invested in a medium- to low-risk investment system, but it can be changed to a high-risk investment system that can both increase or reduce the pension, depending on the results of the investment.


Is the state pension designed to provide a certain level of replacement income to workers who have worked continuously until retirement age?

Yes. In Mexico, the replacement income is 26.4 per cent of the last salary earned by the worker.

Current fiscal climate

Is the state pension system under pressure to reduce benefits or otherwise change its current structure in any way on account of current fiscal realities?

There has been some pressure regarding the low replacement income of pensions in Mexico. There has been discussion regarding whether the percentage of contributions should be increased to increase the replacement income of the pensions, but there have not been any modifications yet.

The Mexican government is trying to use the funds from the pension system to fund its social welfare programmes. 

Occupational pension schemes


What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

There are several types of private pensions and retirement plans for the employees, the most common type in Mexico is defined benefit, which is a pension plan where the company defines the remuneration that the employee will receive once he or she has retired, but in recent years, the use of hybrid or mixed plans has become more common.

A second type of private pension plan is defined contribution, where the employee has an individual account, and the contribution is free and according to what the employee accumulates, plus the contribution of the company, before he or she retires.

A third type of private plan pension are hybrid or mixed plans. These take into consideration the amount of the contributions made in the name of each employee, as well as the amount that the company defines as the remuneration that the employee will receive.


Are employers required to arrange or contribute to supplementary pension schemes for employees? What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

If the employer wants to keep all the tax benefits given for applying a private pension plan, it must offer the plan to all its employees, whether unionised or non-unionised; however, the employer can define general rules or conditions, such as the amount of the contributions made by each employee or the seniority in the employment.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

Yes. In certain plans, the employer can impose certain conditions, such as the employee’s seniority in his or her job. In the event of an early withdrawal, the employee may not withdraw all of the amounts – only the part determined by the employer. The parties can freely agree to the rules of the plan; however, the only amounts that will always be respected or returned to the employee are those that are invested with money contributed by him or her.

Overseas employees

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

Given that the employer sets the terms and conditions of the private pension plan, employees that work permanently or temporarily overseas may be able to participate. However, this may eventually cause tax problems as the benefits of the plan are not derived from the direct employment relationship; therefore, it may be considered as a taxable income.


Do employers and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

It depends on the type of plan. In a defined benefit plan, the company assumes the investment risks and the cost of the plan. In a defined contribution plan, the benefits for the employees will be the difference between the sum of the contributions and the diminished profits of the losses and the expenses of administration of the fund.

These plans are usually administered through trusts or open contracts in investment fund operators or brokerage firms. Usually, they invest in public debt or variable national income.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

The rules according to the plans are as follows.

  • Defined contribution: the company delivers pre-established amounts or percentages to a determined investment fund. The benefits for the employees will be the difference between the sum of the contributions and the diminished profits of the losses and the administration expenses of the fund. The benefits depend on the accumulated balance in the individual account of each worker and can provide both.
  • Defined benefit: the responsibility of the company ends with the liquidation of the benefits, and the retirement amounts are determined based on a structure established in the private pension plan. The investment risks and the cost of the plan are assumed by the company. The benefits are based on salary or years of service, or both.
  • Hybrid or mixed: these involve a combination of variables of the two previous ones. The obligations of the company are not limited by the amount that it agrees to contribute to the fund; as it contracted a legal obligation, the company can make additional contributions if the assets are insufficient to cover its obligations. The benefits depend on the accumulated balance in the individual account of each worker and have a minimum retirement benefit guarantee.
Level of benefits

What are customary levels of benefits provided to employees participating in private plans?

They are gains of the contributed amounts and amounts that are not considered as taxable income. There are other private pension plans that allow for voluntary contributions. 

Pension escalation

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?


Death benefits

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

There are no pre-retirement benefits provided by law.

Mandatory pensions and benefits commonly comprise:

  • funerary expenses;
  • money pension plans for widows and widowers and orphans, with the following exceptions:
    • if the insured died before six months of marriage;
    • if the insured is 55 years old or older and before one year of marriage; or
    • if at the time of marriage, the insured had an old age retirement pension, unless he or she was married with the spouse for at least one year; and
  • a Christmas bonus of 15 days of salary, in relation with the amount of the pension received.

Employees or voluntarily insured people must comply with several rules depending on the pension structure, the cause of death and the amount of social weekly contributions recognised by the Mexican Social Security Institute.

The most common requirements are:

  • a recognition of payment by the Mexican Social Security Institute of at least 150 weekly contributions of the deceased;
  • to be pensioned by means of a disability;
  • to be able to evidence the relationship with the deceased; and
  • that the death was not derived from a work-related accident.

Mandatory rules also determined that the beneficiaries have to choose an insurance company to arrange the pension guidelines regarding the contributions accrued by the deceased.


When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

For public pensions, an employee can retire and receive their full plan benefits once he or she is between 60 (early retirement) and 65 (full retirement) years old, his or her register before the Mexican Social Security Institute has been cancelled, and he or she has made a minimum payment of 1,250 weeks of recognised contributions. This is applicable to those that started their employment relationship after 1997. For those that started before, the age is the same, but the minimum weeks of recognised contributions is 500 weeks. 

Commonly, plan benefits are given to the employees once they retire or on termination of their employment.

Early retirement affects benefit calculations regarding its tax treatment. If the contributions are withdrawn before the agreed term of the private plan, its burden tax will be increased, affecting the retentions the employee is obliged to pay. 

Early distribution and loans

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

There are some private plans that allow loan or distributions of the plan benefits, but it is not common given that such withdrawals may affect the deductibility of the benefit.

Change of employer or pension scheme

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

Private plans are used as collective plans for all employees, considering that this is a requirement for tax deductibility.

Therefore, if an employee changes his or her employer, they may have the following options: transfer his or her benefits to his or her AFORE; use an individual private pension plan and continue with his or her voluntarily contributions; or, if the new employer has a private pension plan with the same financial institution, then his or her benefits can be transferred to the new pension plan. However, this would be determined by the private pension plan.

With respect to the mandatory retirement plan, a change of employer does not affect it. 

In what circumstances may members transfer their benefits to another pension scheme?

If the private plan establishes the possibility, then an employee can transfer their benefits to another pension scheme; however, he or she would have to consider that a tax burden can be imposed to his or her benefits, and he or she will have to comply with the requirements of the new scheme. It is not customary in Mexico to change funds from one benefit plan to another. Commonly, employees lose the right upon termination of employment.

Investment management

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

Financial institutions registered under the National Savings System for Retirement Commission (CONSAR) are considered as funds administrators.

Those financial institutions enter into agreements with the employers to execute a collective private pension plan in favour of their employees.

Reduction in force

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?


Executive-only plans

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

Executive-only plans are permitted; however, the law provides that for a benefit to be tax deductible, it must be offered to all its employees, whether unionised or non-unionised.  Therefore, if the benefit is only granted to executives, the company would lose the benefit.  The law also provides that if the benefit does not qualify as deductible, then it would be a taxable income for the employee. 

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

The legal requirements are the same, except for its tax effects. 

Unionised employees

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

No difference, except that retirement benefits to employees in a trade union will normally document the plan within the collective bargaining agreement. 

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

Mexican law recognises the same benefits and prerogatives for union and non-union employees; therefore, retirement plans will generally have the same terms and conditions for every participant. Although some plans may be restricted for non-union employees, if the plan allows the participation of any employee, it will not establish different requirements for access to retirement benefits.


Examination for compliance

What is the process for plan regulators to examine a plan for periodic legal compliance?

The CONSAR has the authority to review the requirements established for the registration of private retirement plans, according to the regulations applicable to the plans. Once registered, the plans will only be subject to the review of the CONSAR if there is a change to their terms and conditions of employment that should also be filed and registered with the CONSAR.


What sanctions will employers face if plans are not legally compliant?

Employers that fail to comply with applicable Mexican legislation with respect to their private retirement plans will not be allowed to deduct the contributions made to plan from tax.


How can employers correct errors in plan documentation or administration in advance of a review by governing agencies?

As a requirement to obtain registration of private retirement plans before the CONSAR, employers must also attach an actuarial analysis by an authorised professional to identify the obligations and costs associated with the operation and funding of the plan. Employers may correct errors by updating the actuarial analysis and conducting periodic reviews of the plan’s content by tax and compensation experts.

Disclosure obligations

What disclosures must be provided to the authorities in connection with plan administration?

The plan administrator of a private pension plan is a technical committee, normally comprised of active employees of the employer. Appointing individuals from the finance and human resources department to the committee is common practice. Authorities are informed from time to time of the names and terms of the members holding a position in the committee.

What disclosures must be provided to plan participants?

Although not required by law, it is considered best practice for participants to be made aware of all the terms and conditions of the plan, except for the financial balance or actuarial analysis corresponding to its funding.

Enforcement mechanisms

What means are available to plan participants to enforce their rights under pension and retirement plans?

Private pension and retirement plans are unilaterally established by employers. However, once the plan is in place and a participant has vested rights under it, retirement benefits become part of the employee’s terms and conditions of employment. Accordingly, a participant with vested rights in a pension or retirement plan has the right to bring an action against the employer before the Conciliation and Arbitration Board, to enforce those rights.

Plan changes and termination

Rules and restrictions

What restrictions and requirements exist with respect to an employer changing the terms of a plan?

In general terms, changes to a private pension or retirement plan cannot have a negative impact to the vested or acquired rights of the participant. The technical committee as the plan administrator can approve changes that will not reduce or eliminate the participants’ rights under the plan. 

What restrictions and requirements exist with respect to an employer terminating a plan?

The employer can terminate a private pension plan, provided that contributions by the participants are reimbursed along with accrued interests. Similarly, if a participant already has a vested right under the plan, the employer is responsible for paying the participant or allowing him or her to enjoy such right prior to termination.

Insolvency protection

What protections are in place for plan benefits in the event of employer insolvency?

Employee rights are pre-eminent over any other creditor and, therefore, an employee with vested rights under a pension or retirement plan will be entitled to claim the corresponding benefits before other company debts. Mexican labour law provides that employees do not need to participate in an insolvency procedure to claim the payment of mandatory labour and employment benefits.

Business transfer

How are retirement benefits affected if the employer is acquired?

In a share acquisition, a private pension plan will continue its operation without any impact. The employer sponsoring the plan will continue doing so, and the change of share ownership does not normally trigger any change to the terms and conditions of the plan.

In an asset acquisition, the standard practice is that the buyer sets up a pension plan with similar terms and conditions to allow the employees that will also transfer to the buyer to continue in their participation in the plan. The funds of the plan in this scenario would normally transfer to the buyer’s new pension plan to honour the contributions made by the employer or the participants, or both. Provided that the transfer of the funds will not change their purpose, guaranteeing pension or retirement rights, there would not be a tax effect associated with the transfer of financial resources.


Upon plan termination, how can any surplus amounts be utilised?

Once the plan administrator has reimbursed participants for all their contributions and accrued interests and has paid out any pension or retirement benefit to participants satisfying the requirements of the plan, the employer can take control of the remaining balance.

Fiduciary responsibilities

Applicable fiduciaries

Which persons and entities are ‘fiduciaries’?

Mexican rules applying to private pension plans provide that financial institutions, credit agencies, stockbrokers, investment firms and retirement fund administrators can act as fiduciaries of retirement plans.

Fiduciary duties

What duties apply to fiduciaries?

The fiduciaries will normally enter into a financial services agreement with the employer sponsoring the plan and will assume the obligations of administering the funds, investing the contributions made to the funds under the restrictions established in the law and, whenever necessary, processing the reimbursement of contributions and interests (ie, termination of participation in the plan) and payment of retirement benefits (ie, satisfying eligibility requirements).

Breach of duties

What are the consequences of fiduciaries failing to discharge their duties?

Failing to comply with its fiduciary duties could be sufficient grounds to terminate the services agreement with the fiduciary and claiming civil damages.

Legal developments and trends

Legal challenges

Have there been legal challenges when certain types of plans are converted to different types of plan?


Have there been legal challenges to other aspects of plan design and administration?


Future prospects

How will funding shortfalls, changing worker demographics and future legislation be likely to affect private pensions in the future?

The legal requirement of having an actuarial analysis balances all these factors. The actuarial analysis includes forecasts of funding depending on the number of participants, their seniority and age. It also considers the company’s trend for hiring and terminating employees, which will affect the periodic contributions that the employer must comply with.

Update and trends

Hot topics

Are there any current developments or trends that should be noted?

Not at this time.

Updates and trends

Law stated date

Correct on:

Give the date on which the above information is accurate.

28 February 2020.