t was the year 1998. Doubts about the viability of the traditional pension system were not yet as pronounced as in more recent times. However, Mexican politicians had decided to address the issue proactively and develop a retirement savings framework based on contributions to

privately managed individual accounts.

 

Although there were those who opposed the change, the architect of the reform stated at the time that “implementing and developing the individual capitalization pension system is the best news for Mexico in the current environment of international financial turbulence.”

 

The individual making these statements was José Piñera, the Chilean economist who promoted the shift to private savings pensions in numerous countries around the world. In his opinion, this reform was destined to “strengthen the economy, ensure growth, and allow salaried workers to accumulate wealth to have freedom and dignity.” Expectations of population aging amplified the resonance of Piñera's message among Mexican politicians. This is because the demographic landscape of the North American country reflects a progression toward a society with greater longevity.

 

Piñera's optimism has been validated over the years. The pension reform began to take shape in 1992, when the Mexican government approved the Retirement Savings System Law. The new system commenced in 1997, under President Ernesto Zedillo, when the Retirement Fund Administrators (AFORES) began operations and started managing the savings of workers affiliated with social security.

 

Each worker has between 6% and 8% of their salary withheld. Depending on their age group, investment companies adopt more or less conservative strategies. The number of accounts managed by the AFORES increased from 14 million to 52 million between 1998 and 2014. The assets under management initially represented 6% of GDP, but today they account for 14%.

 

Considering the case of an average worker, 45% of the retirement assets accumulated in their individual savings account has been obtained through the returns generated. This means that for every 55 dollars contributed, they have achieved another 45 thanks to the compound interest produced by the investments made. In the years the system has been in operation, and despite the financial turbulences of the Great Recession, the nominal return has been 12.5%, which translates into a real gain of 6.2% annually.

 

Official reports highlight that, in addition to avoiding the pension crisis, the reform endorsed by José Piñera has had other positive effects for the country's economy: strengthening legal security, with emphasis on the legal protection of private property; financial innovation, with inheritable accounts, subject to portability and regular modifications; institutional transparency, with an improvement in corporate governance and financial information; increase in savings and private investment, also linked to a drop in the fiscal liability associated with pensions; and greater macroeconomic stability, with more liquid capital markets and less dependent on the international cycle.