_13_ _Mexico: The 1997 Pension Reform_

**Table 5: Mexico - Comparison of PAYG and Reformed Old Age Security Systems**

||**-** ~~~~~~~Myt~|**9XF;w317RcV+**<br>**_W._SyH*-B**<br>**_1stem._**|
|---|---|---|
|**_OldAgeand Severance (RCV)_**|<br>IMSS|*Contributions to chosen pension fund administrator<br>(AFORE)<br>lBenefits provided by AFORES if new system, or IMSS<br>if old PAYG system chosen at retirement (Transition<br>generation only)|
|**_DisabilityandLifeInsurance_**|IMSS|<br>IMSS|
|**_B.COA?TRIREI_**|**_TIONS~~~~~~~_**<br>**_15.5_**|**_16.5 -21. 0 (average 1 7. 5)_**|
|**_Old age and severance (RCV)_**<br>**_Disability and life (IV)_**|**_11.0_**<br>**_4.5_**|_12.5-17.0_**_(=11.5_**_+_**_social quota):_**_13.5 average worker_<br>**_4.0_**|
|<br>Detailed breakdown:|**IVCM (to IMSS):**<br>**8.5**|**RCV Individual Accounts:**|
||Old age and severance<br>3.0<br>Disability and death<br>3.0<br>Reserves for pensioners' health 1.5<br>Administration expenses<br>0.6<br>Social Assistance<br>0.4<br>**SAR-Retirement (to Central Bank): 2.0**|**to AFORES:**<br>6.5b+Social Quota<br>Old age and severance<br>4.5<br>Retirement sub-account<br>2.0<br>Social quota (per day)<br>5.5% of I MWC<br>to INFONAVIT:<br>5.0<br>**IV to IMSS:**<br>**4.0**|
||**SAR Housing (to INFONAVIT):**<br>**5.0**|**-**Disability and life<br>2.5|
|||Reserves for pensioners' health_1.5_|
|**_Old Age_**<br>_Severance_|500 weeks (10 years) and 65 years old<br>500 weeks and 60 years old|1,250 weeks (25 years) and 65 years old<br>1,250 weeks and 60 years old|
|**_Disability Insurance_**|<br>150 weeks, inability to earn 50% of salary|<br>250 weeks|
|<br>**_Life Insurance_**|<br>150 weeks|250 weeks|
|**_IXBEYEFnls _**|||
|**_Old Age: Amount ofpension_**|(i) benefits accrued under PAYG system<br>(a % of the average wage of last 5 years in<br>nominal terms plus a fraction for each year in<br>excess of 10, with a maximum of the above<br>mentioned average wage;_indexed to changes_<br>_in minimum wage). +_<br>(ii) accumulated INFONAVIT contributions<br>(iii) retirement sub-account 5/92-8/97|**New workers:**accumulated balances in individual<br>accounts (AFORES + INFONAVIT) since 9/1/1997;<br>**Transition workers:**at retirement choose highest<br>between: (i) current benefits (see previous column) and (ii)<br>accumulated balances in individual accounts (AFORES +<br>INFONAVIT) since 9/1/1997+retirement sub-account<br>accumulated balances 5/92-8/97 (if still in Central Bank)|
|**_OldAge: Withdrawals d_**||*****<br>Gradual withdrawals from individual account in the<br>AFORE, e or<br> <br>|
|||*<br>Annuity bought from an insurance company|
|**_Disability Insurance:Amount_**<br>**_ofpension_**|Depends on degree of disability. Provided<br>by IMSS: a % of the average wage of last 5<br>years in nominal terms plus a fraction for<br>each year in excess of 10, with a maximum<br>of the above mentioned average wage|<br>*****<br>Degree of disability still determined by IMSS.<br>*****<br>Pension provided by private insurance companies:<br>35% of average wage (in real terms) for the last 500<br>weeks of contributions|
|**_Life Insurance: Amount of_**<br>**_pension_**|.<br>Widow: 90% of disability pension;<br>Dependents: 20% of disability pension, or<br>30% if both parents deceased|Same as before|
|**_Minimum Pension Guarantee_**<br>**_(MPG)_**|Equivalent to one Mexico City minimum<br>wage level indexed to actual minimum wage|Equivalent to one Mexico City minimum wage on 7/1//97<br>indexed to the CPI f|

a. Under IVCM contributions could not exceed 10 times the minimum wage and under the new system it is 25 times.

b. Plus the accumulated balances in the retirement sub-account (from 1993 to 8/1997) if the worker so wishes.

c. Government contribution of 5.5% of one minimum wage (MW) - in July 1997 - per day is indexed to the consumer price level. On average, this quota will be equivalent to 2.0 % of wages (considering that the average wage is approximately 2.6 times the minimum wage).

d. Lump withdrawal at retirement permitted only for balances in excess of 130 % of the cost of an annuity equal to the MPG.

e. Gradual withdrawals will consider insurance to cover probability that they live longer than expected and outlast savings.

f. Currently average wage for IMSS affiliates is 2.6 minimum wages, thus MPG is approximately 38 % of average wage.