_Mexico: The 1997 Pension Reform_ _21_ TABLE 9. PENSION REFORMS IN LATIN AMERICA

||**(all**workers)|contribution||contribution|workers only)|
|---|---|---|---|---|---|
|Transition arrangements<br>What happens to old<br>system?<br>|Phased out|Continues with<br>changes|Continues with<br>changes|Continues with<br>changes<br>to_hoce|Eliminateda<br>beeft<br>_hage_t|
|Is current labor force||||||
|allowed to remain in old<br>scheme?|Yes|Yes|Yes|Yes|Noa|
|Is new system mandatory<br>for new labor force<br>entrants?|Yes|No|No|No|Yes|
|Can workers switch back<br>to public system?|_No_<br>l_______________|No<br>(after June 1996)|No|Yes, every three<br>years.|Noa|
|Recognition bonds|Yes|Yesd|Yesb|Yesc|Noe|
|_Profile of new pension_<br>_scheme_What role for<br>public pillar?|Minimum pension<br>guarantee (MPG)<br>Social assistance|MPGI<br>Social assistance<br>___________Social|Flat and minimum<br>pension|MPG<br>Social assistance|MPG<br>Social Quota<br>assistance|
|Total contribution rate<br>||||||
|for new system:<br>for old age annuity|1 0|Priv: 8 (10 on 1/97)<br>Public: I I (max 13)|<br>8|10|6.5+5.0+(S.h|
|disabio./survivors/adm<br>public pillar and soc.<br>aseistance|.<br>3<br>General revenues|<br>.3<br>I|3<br>169|3.5<br>I|4.0<br>General Revenues|
|Total contribution rate:||||||
|before reform<br>after the reform|19<br>13|9<br>13.3|27<br>27|8 (private sec.)<br>13.5-14.5i|_15.5_<br>_16.5_-21.0|
|Estimated implicit PAYG<br>debt at time of reformi<br>(as % of GDP)|126% (in 1980)<br>(through 2030)<br>__<br>_<br>_<br>_<br>_<br>_<br>_<br>_|37%<br>(termination<br>liability)|n.a.<br>_<br>_<br>_<br>_<br>_<br>_<br>_<br>__|61.6%<br>(through 2025)<br>_<br>_<br>_<br>_<br>_<br>_<br>_<br>_|141.5% (in 1994)<br>(through 2069)|
|Minimum rates of return<br>of private pension funds|Benchmark<br>relative to market<br>average|None<br>_________|Benchmar-k<br>relative to market<br>average|Benchmark<br>relative to<br>synthetic portfolio|None|
|Goverment guarantees<br>on rates of return of|Difference<br>between balances|(Differencc<br>between balances|None|Difference<br>between balances|Difference between<br>balances at|
|private pension funds|at retirement and<br>MPG|at retirement and<br>MPG)f|______|at retirement and<br>MPG|retirement and MPG|
|Maximum percentage of<br>portfolio allowed in:||||||
|Domestic equities|30|35|_50_|30|0|
|Foreign securities<br>|10<br>|_5_|t0|15|0|
|Gover. securities<br>(in_1994)|45<br>__<br>_<br>_<br>_<br>_<br>_<br>_|40<br>_<br>_<br>_<br>_<br>_<br>_<br>_|50<br>_<br>_<br>_<br>_<br>_<br>_<br>_<br>__|50|100 (in 1997)<br>_<br>_<br>_<br>_<br>_<br>_<br>_|

a. Contributions tothe old system cease on August 31: 1997. Transition workers can choose at retirement the higher of the benefits available under the old PAYG scheme or the new defined contribution plan.

**b.** "Compensatory pension" is paid upon retirement, not as a bond. The value is based on years of contribution and last ten years' eanings.

c. Workers with fewer than 150 weeks of contributions are not eligible for a recognition bond.

d. Only workers who have contributed for at least 48 months in the last 10 years and have at least 6 months prior to entering the new system.

e. Disclosute of expected current and future fiscal costs would be made on an annual basis.

f. MPG introduced with second round of reforms in 1995, but regulations have not yet been issued.

g. This is paid by the employer.

h. Social Quota indexed to the **CPI** and estimated between I and 5.5 percent depending on worker's income and on average equivalent to 2.2 % of wages.

i. The rate shown is for both private and public sector and for 1996 and following years. Contribution rate increased gradually during 1994-96. Different methodologies used. Source for Colombia and Chile is Schmidt-Hebbel, 1995 (page _58)_ for Peru is Kane and Palacios, 1996 (page 38).