The impact of IMSS pensions on Mexico's public finances

Abstract

The importance of the insured members of the Mexican Social Security Institute (IMSS) can be appreciated because it has 20.6 million members as of December 2021, which represent 83.5% of formal employment in Mexico. Pensions and retirements under the transition regime of IMSS Law 73 (defined benefit) are be-coming one of the main problems facing national public finances. The liabilities of the Mexican Social Security Institute (IMSS) in its IMSS-employer modality correspond to the equivalent of 11.9% of the GDP for the year 2021, while those of the IMSS-insurer is 44.1% of the GDP, adding both modalities, they reach 56% of the GDP. According to actuarial calculations, the maxi-mum point of public spending for pensions under the transition regime (defined benefit) will be reached in 2035. The replace-ment rate of a worker affiliated to the IMSS who contributed under Law 97 (capitalization regime) was only 25%; with the reforms made in December 2020, it is estimated that the re-placement rate will reach 60%. By the year 2019, the retirement fund administrators in Chile had resources equivalent to 80.8% of GDP; Uruguay 29.1%; Colombia 24%; Peru 22.8%; and Mex-ico 16.4% of GDP, which is a very low indicator compared to Latin American nations.

The Fiscal Reform Required for Mexico in 2025

“…work ofVillalobos L. (2022a;2022b) on the impact of pensions and retirements on public finances.Before addressing what would be the strategy or the basic steps that the national fiscal or tax reform should follow, let us analyse the impact and who actually pays the contributions in Mexico. The Tax Administration System (SAT, 2022) in its Tax and Management Report for the fourth quarter of 2021, stresses that there are 60.35 million active taxpayers in the country, of which 47.03 million are individuals who receive wages and salaries (78% of the total); 10.96 million individuals with business or professional activity (18% of the total); 2.28 million legal entities (4% of the total); and 11,831 large taxpayers (0.02% of the total).…”