MEXICO - The Mexican government should require companies and employees to more than double their pension contributions to bolster retirement incomes and the economy, said Oscar Franco, head of the pension association.
The limit should "gradually" be raised to 14% of an employee's salary, said Franco, executive director of the pension group known as Amafore.
"Without a doubt, today's 6.5% contribution is insufficient for a proper pension," Franco said in today in an interview in Bloomberg's Mexico City offices. Amafore plans to lobby Congress this year on the issue because "it cannot be postponed," he said.
Raising pension fund contributions would increase these holdings to up to 50% of gross domestic product by 2030 and help Mexico invest in infrastructure projects, Franco said. Pension funds currently represent 10% of GDP, according to Amafore, which represents Mexico's 14 government-regulated funds.
Assets managed by the funds, known as Afores, rose about 23% last year to MXN1.151trn pesos (US$90.8bn), according to data from Mexican regulator Consar, making them Mexico's biggest institutional investors. That balance may grow 18 percent or 20 percent annually, Franco said. (Read related article: Global Pensions; January 18, 2010)
"The big challenge would be to translate that potential growth to an economic boost and better returns," Franco said.
On October 1, president Felipe Calderon announced new legislation to accelerate plans to build highways and ports and encourage investment to help the economy.
The proposal would allow Mexico's pension funds to buy stocks outside of indexes and take part in initial public offerings to channel resources to infrastructure, the Finance Ministry said. The funds could also participate in infrastructure project trusts, investments that mix bond guarantees with stock returns.
As of December, the pension funds invested 66% of their portfolios in government debt while 13% was invested in the stock market, mostly in domestic securities.
Calderon set a goal last year of spending 2.5trn pesos in private and public money during his six-year term on such projects. Mexico has postponed some projects amid the worst economic contraction since the 1930s.
The new proposal would cut bureaucracy, reducing the time it takes to carry out public works projects by 30%, Calderon said. It may allow the government to announce MXN61bn in new projects by year-end and to increase financing for projects by MXN125bn by 2012, he said.
Partner Insight: Members' evolving needs and expectations are driving changes in scheme administration. As the pensions landscape inevitably continues to change, how will your scheme's approach need to develop to keep pace?
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