1. Measurement of the Social insurance schemes in Mexico, basis on the 2008 SNA Martha Tovar Workshop on Pensions 22-24 April 2013 Canberra, Australia

2. Background Social security system Defined contribution schemes Defined benefit schemes Remaining tasks Conclusions Content

3. Background In Mexico the Social insurance system covers Health and Pensions and the benefits are provided by a wide net of institutions. The kind of benefits provided differs depending on the rights enclosed in the collective bargaining. The National social insurance system comprises the named National Pension System, a set of institutions, schemes and funds that operate simultaneously. The pension schemes involved are of the three known types: DC, DB or hybrid. There have been two important reforms in the social security Laws that cover the private and public employee schemes, on these bases the pension scheme with individual accounts (DB) and private administrations have risen. Nonetheless, the DC schemes exist for covering the ratio of the workers that chose the previous scheme or belong to a scheme that is of DC by definition.

4. Social security system

5. There have been two reforms in the social security scheme in Mexico, after that its functioning as following: Social security reforms Scheme for employees in the private sector 1973 Law: Unfunded pension scheme sponsored by the government (DC) 1997 Law: Funded pension scheme based on individual accounts (DB) Scheme for employees in the public sector 1983 Law: Unfunded pension scheme sponsored by the government (DC) 2007 Law: Funded pension scheme based on individual accounts (DB) Reforms to the Social security Laws

6. National social insurance System and National Pension System Social security Private social insurance National social insurance System Three Federal government institutions and Local institutions (mainly for Health) Employees of federal administrations, Local governments, Universities, etc. Private employee schemes. DB scheme DC scheme DB scheme DC scheme Hybrid scheme Scheme for private sector employees: all the workers have an individual account, but the final decision about the scheme will be made at the end of the labor life. Scheme for the public sector employees: the workers have already decided the scheme, DC or DB. The constitution and way of operation are discretionary, depends on the arrangements between the employee and the employer. National Pension System

7. Contributions entered to the schemes for Private and Public employees % respect the defined basic wage EmployeeEmployerGovern ment Total Priv.Pub.Priv.Pub.Priv. Pub. Health and social benefits 0.7373.8757.9538.5953.67512.36512.470 Dwelling--5.005.000-5.005.000 Retirement1.7506.2258.7206.5501.89912.36912.775 Total2.48710.10021.67320.1455.57429.73430.245 Non pension contributions Pension contributions Social contributions to the Social security system

8. Net social contributions The social contributions are compiled taking into account the origin: pension and non pension, some results are presented following: Households accounts % of GDP Funded schemeNon funded schemeTotal CodeConcept201020112010201120102011 Secondary distribution of income account Social contributions and benefits for pension D6111Employers actual pension contributions0.760.750.440.451.191.20 D6121Employers imputed pension contributions 0.170.210.170.21 D6131Households actual pension contributions0.02 D6141Households pension contribution supplements0.930.26 0.930.26 Social insurance scheme service charges0.15 D6211Social security pension benefits in cash -1.78-1.84-1.78-1.84 D6221Other social insurance pension benefits-0.14-0.13-0.17-0.21-0.31-0.33 Social contributions and benefits for non-pension D6112Employers actual non-pension contributions0.980.721.010.991.991.71 D6122Employers imputed non-pension contributions 0.29 D6132Households actual non-pension contributions D6142Households pension contributions supplements0.410.32 0.410.32 D6212Social security non-pension benefits in cash -0.09 D6222Other social insurance non-pension benefits-0.26-0.27-0.29 -0.55-0.56 Use of income account D8Adjustment for the change in pension entitlements1.410.76 1.410.76 B8gSaving 7.406.69

9. Population covered by the Social security system

10. The 68.5 millions of people covered by the Social security system are integrated as following: Active EmployeesRetired person Population covered Covered populationEmployeesBeneficiaries Retired person Retired Employees' beneficiaries Private sector employee scheme 31.4140.384.583.8380.20 Public sector employee scheme 4.6611.372.451.3219.80 Total 36.0751.757.035.15100.00 Retired person Unfunded scheme Funded scheme Private sector employee scheme 65.140.0065.14 Public sector employee scheme 34.760.1034.86 Total 99.900.10100.00

11. Defined contribution schemes

12. The Social contributions for pension are assigned to individual accounts, then are direction to investment funds specially for the retirement. The sum is named Resources of the System of Saving for the Retirement.

13. How does the DC schemes operate? Insurance and pension institutions Social contribut ions Pension resources administrations Pension investment funds Others social insurance schemes Social security institutions Private and public sector Employers Households Regulatory and supervisory institutions Remunera tions Non pension benefits DC Pension funds Retirement payments Regulatory frame

14. Defined benefit schemes

15. Defined Benefit Schemes The DB schemes are financed with the public budget, special current transfers are assigned to cover this pension payments. Regarding the government liabilities on pensions, some actuarial estimations of the future pension obligation report amounts around 104.2% of GDP, for the year 2010. In 2012, the Secretariat of Treasury and Public Debt prepared a set of recommendations to elaborate actuarial valuations of pensions and other labor obligations, for the entities that conform the central government and the entities under budgetary control, based on the generic methods ABO and PBO. However, they are voluntary recommendations.

16. Considerations for the measurement of the liabilities for labor obligations The CD schemes represent a serious problem in the public budget and even in some private schemes, the reforms applied in the past into the Social insurance scheme has established new parameters to understand the issue and has promoted the measurement of the future liabilities, but the fact is that there is still a big task to do to dimension the real size of the pension entitlements. As in all the countries, in México the life expectancy is growing and another structural reform could be necessary to solve the problem, as a beginning.

17. Remaining tasks

18. Identified schemes, public and private sector The supervisory entities identify some schemes installed in the private sector and in some public entities, the type could be CD, BD or hybrid. BDCDHybridTotal Covered employees Number of schemes Covered employees Number of schemes Covered employees Number of schemes Covered employees Number of schemes Schemes in the private sector 765 9251 156175 786184313 9046621 255 6142 002 Schemes in the public finance sector 4 650n.a383n.a--5 033- Schemes in autonomous organs n.a30n.a34--137 03964 The data is not fully reported, in the private sector the report is voluntary and in the public sector the entities do not submit the enough data for auditor purposes. In private sector schemes the amount of labor passives rises to $466,327 millions. It is important to stress that more than the half of the schemes is no funded totally.

19. Columns D to G Recently a CG supervisory organ audited the pension funds operated by public administrations, through this auditory was possible to know more about the types of plans and the covered population.

20. Conclusions The reforms in Mexico have not been totally structural for the whole Social security system. Even when the System has changed, it does it mean that is fully funded and of DB for all the covered employees, therefore, there are a lot of actuarial valuations that need to be done to quantify the future obligations. The most of the private schemes are installed in the accounting of the sponsors scheme and more than the half is underfunded. The main problem that is facing to measure the DB schemes is the lack of data to apply the actuarial methods. The way to follow is the researching in the entities that sponsor the schemes and the consulting through the supervisory and auditor entities.

21. Thanks for your attention!

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