Gregorio Impavido Old age benefits (subaccount RCV) are now defined contribution benefits based on individual accounts managed by dedicated pension fund administrators (AFOREs) with monies invested in legally independent and dedicated pension mutual funds (SIEFOREs) under the supervision of a dedicated pension supervisor (CONSAR). Contributions to the RCV account amount to 6.5 percent of the worker’s base salary plus a flat contribution from the federal government of MXN 2.76 per working day as of end of 2005. Disability, life and survivorship benefits (subaccount IV) are still defined benefit administered by the IMSS but with a revised benefit formula. Contributions to the IMSS for this line of benefit amount to 2.5 percent of the worker’s base salary. Workers’ compensation (subaccount RT) remains administered by the IMSS with variable contributions as defined in Article 72 of LSS-97. Finally, housing (subaccount V) contributions amount to 5 percent of the worker’s base salary and are managed by the housing financial agency for private sector workers (INFONAVIT) while AFOREs conduct record keeping for this account.

**Table 1: Contributions Under SAR-92 and SAR-97 (Percentage of Base Salary)**

|**Subaccount**||**SAR-92**<br>**Period**<br>**1992 –**<br>**1997**|**SAR-97**<br>**Period**<br>**1997 – onwards**|**Managed during**<br>**accumulation period**<br>**by:**|
|---|---|---|---|---|
||**R**etiro1/|2.0 percent|2.0 percent||
|**RCV**|**C**esantíay **V**ejez 2/||4.5percent|AFOREs,|
||Cuota Social 3/||MXN 2.76 per working<br>day|SIEFOREs|
|**IV**|**I**nvalidezy **V**ida 4/|2.5percent|2.5percent|IMSS|
|**RT**|**R**iesgo de**T**rabajo<br>5/|n.a.|Min. 0.25 percent,<br>Max. 15percent|IMSS|
|**V**|**V**ivienda 1/|5.0 percent|5.0 percent|AFOREs,<br>INFONAVIT|

**Notes** : 1/ Employer funds 100 percent of this contribution; 2/ Employer funds 3.15 percent, employee funds 1.125 percent, federal government funds 0.225 percent; 3/ federal government funds 100 percent of this contribution. The value reported is indicative of end of 2005.  This is indexed to inflation and updated every quarter; 4/ Employer funds 1.75 percent, employee funds 0.625 percent, federal government funds 0.125 percent; Minimum and maximum as defined in Article 72 of LSS-97.

**Source** : IMSS, CONSAR.

As far as the accumulation phase is concerned, Table 2 summarizes the growth of the AFORE system since the 1997 reform. Currently around 10 percent of GDP is accumulated in the new system. To these reserves, it is necessary to add the reserves accumulated by the IMSS for the lines of benefits of IV and RT to have a sense of the potential demand for annuity products that can be provided by the private sector.

As far as the decumulation phase is concerned, the SAR-97 reform treats differently members of the “transition cohort” from members of the “new cohort.” If a new entrant to the labor force after July 1997 (the so called “new cohort”) becomes disabled or dies, she or her beneficiaries must buy an annuity from a private insurance sector specialized annuity provider. If a member of the new cohort retires at old age (65 years or older) or due to severance at old age (at least 60 years old) she can choose between a programmed

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