Academic journal article ABA Banking Journal

Mexican Banks to Handle National Pension System

Academic journal article ABA Banking Journal

Mexican Banks to Handle National Pension System

Article excerpt

"In the U.S. you may think Social Security is not enough for retired workers to live on," says Dr. Moises Schwartz, market studies director at Banco de Mexico, Mexico City, the country's central bank. "Here the pension people get is really not enough to live on."

That is due to change starting May 1. Mexico's ineffective national pension system is being replaced with individual bank accounts to which employers contribute.

Every two months, employers must deposit the equivalent of 7% of each employee's pay in a commercial bank of their choice. Of that amount, 2% is meant for retirement and the other 5% for housing. For those who do not use the housing money to build or buy a home, the entire 7% goes toward retirement.

Theoretically, employers are already contributing an amount equal to 5% of salaries for housing, but some haven't been. Now there will be strict sanctions on employers who don't do this, Schwartz says. Many other employers have been contributing a comparable amount to the national pension plan or a private plan, therefore Schwartz doesn't expect the new system to be a financial burden.

The employer's bank must transfer each employee's money to an individual account at a bank of the worker's choice. …

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