The 2020 pension reform: fewer contribution weeks, higher employer contributions and a cap on AFORE fees
A decree amending the Social Security Law (LSS) and the Retirement Savings Systems Law (LSAR), published in the Official Journal on 16 December 2020 and in force since 1 January 2021, changes the funded pension scheme of private-sector workers insured by the IMSS since July 1997. The number of contribution weeks required for an old-age pension and for the guaranteed pension falls from 1,250 to 750 in 2021, then rises by 25 weeks a year to 1,000 in 2031. Contributions to the individual account rise from 6.5% of salary plus the State’s social quota to 15% by 2030: the worker’s share stays at 1.125%, and the employer’s share for old age rises gradually from 2023 to 2030, by wage bracket, up to 13.875% of salary in total for the highest brackets. The guaranteed pension is recalculated by age, weeks and salary, and the fees charged by the pension fund managers (AFORE) are capped at the average of the United States, Colombia and Chile.
Key points
Total contribution to the individual account (6.5% before the reform)
15%
of salary, by 2030 · Announced
according to the Finance Ministry[3]
Employer contribution for the highest wage brackets (5.15% before the reform)
13.88%
of salary, from 2030 · Announced
Social Security Law, art. 168 and second transitional article of the 2020 decree[1][3]
Contribution weeks required in 2021 (1,250 before the reform, 1,000 in 2031)
750
from 1 January 2021 · Observed
fourth transitional article of the 2020 decree[1]
Average AFORE fee authorised for 2022 (0.808% in 2021)
0.57%
of assets managed, 2022 · Observed
according to CONSAR[8]
Pension expenditure (% of GDP)
5.3% GDP
2023
- Status: In force since January 1, 2021. Published in the Official Journal on 16 December 2020. The 750-week requirement applies at once; the new employer contributions and the new State social quota apply from 1 January 2023.[1]
- Next milestone: 2027, Contribution weeks required rise to 900
At a glance
Reference text
Decreto por el que se reforman, adicionan y derogan diversas disposiciones de la Ley del Seguro Social y de la Ley de los Sistemas de Ahorro para el Retiro (Decree amending, adding and repealing provisions of the Social Security Law and of the Retirement Savings Systems Law)[1][2]
No. DOF 16-12-2020 (Ley del Seguro Social, reforma n.º 25) · December 16, 2020
Read the text ↗Carried by
- Andrés Manuel López Obrador[3][5][1]President of Mexico, announced the tripartite initiative (22 July 2020), sent it to Congress and promulgated the decree (15 December 2020) · 2020 · Initiator
- Arturo Herrera Gutiérrez[4][3]Secretary of Finance and Public Credit, presented the initiative on 22 July 2020; his ministry steered the reform · 2020 · Initiator
- Rogelio Ramírez de la O[8]Secretary of Finance and Public Credit, took part in the CONSAR board session that set the first capped AFORE fees for 2022 · 2021 · Implementation
Implementation
- Mexican Social Security Institute (IMSS): contributions, contribution weeks, granting of pensions
- National Commission of the Retirement Savings System (CONSAR): regulation of the AFORE and approval of their fees
- Secretariat of Finance and Public Credit (SHCP): State contributions and payment of guaranteed pensions through the Federal Treasury
Stated objective
Raise the pensions of workers in the individual-account system, more than double the share of workers who reach a guaranteed pension, and encourage formal employment at low wages by targeting the State’s contribution on them; the Finance Ministry argued that the 6.5% contribution rate was not enough to fund a decent pension.[3][6]
According to the Secretariat of Finance and Public Credit (July 2020)
Main measures
- Contribution weeks: the old-age pensions (« cesantía en edad avanzada » and « vejez », the latter from 65) and the guaranteed pension now require 1,000 weeks instead of 1,250. The requirement starts at 750 weeks on 1 January 2021 and rises by 25 weeks a year until it reaches 1,000 in 2031.[1][3]
- Employer contributions: the employer old-age contribution (« cesantía en edad avanzada y vejez »), 3.15% of salary before the reform, is set by wage bracket, from 3.15% at the minimum wage to 11.875% from 4.01 UMA (Unit of Measure and Update) upwards. It rises gradually each year from 1 January 2023 to 2030, along a table in the decree; the employer’s 2% retirement contribution is unchanged, so the employer’s total rises from 5.15% to up to 13.875%.[1][3]
- Worker and State: the worker keeps paying 1.125% of salary. The State’s former contribution (0.225% of salary plus a social quota for every worker) is replaced from 2023 by a social quota paid per day of contribution only to workers earning up to four times the UMA, with no increase in its total amount according to the Finance Committee; in 2023 a transitional quota also went to workers earning 4.01 to 7.09 UMA.[1][3][6]
- Guaranteed pension: the State guarantees a pension to insured persons aged 60 or more with the required weeks, now calculated by age, weeks of contribution and average salary along a table in the decree (from 2,622 to 8,241 pesos a month in the 2020 table, updated by consumer prices), instead of a single amount. The Finance Ministry put the average at 4,345 pesos against 3,289 pesos (80% of a minimum wage) before the reform. Once the account is exhausted, the Federal Treasury pays it.[1][3]
- AFORE fees: article 37 of the LSAR caps the fees of the pension fund managers at the arithmetic average of the fees in the defined-contribution systems of the United States, Colombia and Chile, under criteria set by the CONSAR board; if those fees fall, the cap falls too, otherwise it stays.[1]
- Other changes: retirees may combine a life annuity with programmed withdrawals; voluntary savings can be withdrawn at any time; the right to the money of the retirement account no longer lapses; beneficiaries named in the AFORE contract receive the account without going to court.[1][3]
In data
Timetable written in the decree, 2021-2030
| Year | 1 minimum wage | 1.51 to 2.00 UMA | 4.01 UMA or more |
|---|---|---|---|
| 2021-2022 (Transition: the pre-reform rate for every bracket.) | 3.15% | 3.15% | 3.15% |
| 2023 | 3.15% | 3.58% | 4.24% |
| 2024 | 3.15% | 4% | 5.33% |
| 2025 | 3.15% | 4.43% | 6.42% |
| 2026 | 3.15% | 4.85% | 7.51% |
| 2027 | 3.15% | 5.28% | 8.60% |
| 2028 | 3.15% | 5.70% | 9.69% |
| 2029 | 3.15% | 6.13% | 10.78% |
| 2030 | 3.15% | 6.55% | 11.88% |
Scale starts at 0% · Old-age branch only (« cesantía en edad avanzada y vejez »): the employer also pays 2% for retirement, and the worker 1.125%. Three of the eight brackets of the decree are shown; UMA = Unit of Measure and Update.
Timetable written in the decree (fourth transitional article), 2021-2031
| Year | Weeks required |
|---|---|
| Before 2021 | 1,250 |
| 2021 | 750 |
| 2022 | 775 |
| 2023 | 800 |
| 2024 | 825 |
| 2025 | 850 |
| 2026 | 875 |
| 2027 | 900 |
| 2028 | 925 |
| 2029 | 950 |
| 2030 | 975 |
| 2031 | 1,000 |
Scale starts at 0 · Workers insured under the individual-account scheme of the 1997 Social Security Law.
Pension expenditure (% of GDP)
5.3% GDP
2023
Informal employment
56.9%
2025
Informality makes it hard for many workers to accumulate the required weeks, according to the Finance Ministry.
Share of people aged 65 and over
8.5%
2025
Timeline
- Under debate
Initiative of the President received by the Chamber of Deputies[5]
Open parliament hearings in the Chamber of Deputies[6]
52 speakers (officials, legislators, academics, employers’ chambers, civil society organisations), according to the rapporteur of the Finance Committee.
Decree published in the Official Journal[1]
Promulgated by the President on 15 December 2020.
- In force
Decree in force[1]
Published in the Official Journal on 16 December 2020. The 750-week requirement applies at once; the new employer contributions and the new State social quota apply from 1 January 2023.
Transition: employer old-age contribution kept at 3.15%[1]
The State kept paying the social quota under the previous rules during these two years.
CONSAR sets the first fees under the new cap: 0.57% for eight AFORE[8]
For 2022: 0.57% of assets for eight managers, 0.53% for the public AFORE (PENSIONISSSTE); the system average fell from 0.808% to 0.566%, the largest fall since the AFORE system was created, according to CONSAR.
- Current step
Gradual rise of employer contributions (2023-2030)[1]
Each year the employer old-age contribution rises for every wage bracket above the minimum wage, along a table written in the decree; the State social quota now goes to workers earning up to four times the UMA.
Pension Fund for Well-being created[9]
A separate decree (in force on 1 May 2024) creates a public trust at the Bank of Mexico that tops up, subject to the fund’s resources, the pensions of workers covered by the 1997 scheme who retire at 65 or older, up to their last salary within a ceiling of 16,777.68 pesos a month (2023 average IMSS salary updated for 2024). It is funded in part by the retirement savings of people aged 70 or more with no active job, transferred by the AFORE and still claimable by their owners.
Supreme Court upholds the cap on AFORE fees[11](secondary source)
Ruling unanimously on an appeal by the Executive and CONSAR against an amparo granted to a fund manager, the full court found that the cap in article 37 of the LSAR protects workers’ savings and does not breach free competition or legitimate expectations, according to press reports.
- Upcoming: the outcome is not known
Contribution weeks required rise to 900[1]
According to the timetable of the decree; the employer old-age contribution for the highest bracket reaches 8.603% of salary.
- Upcoming: the outcome is not known
1,000 contribution weeks required; CONSAR review of the reform[1]
The decree requires CONSAR to send the Finance Ministry, ten years after its entry into force, an analysis of its results, which the ministry reports to Congress.
The debate
Citoyen takes no position: arguments are reported as their authors put them.
According to its supporters
- The Finance Ministry argues that the 6.5% contribution rate could not fund a decent pension, that the reform raises pensions by 42% on average without cutting workers’ take-home pay, since employers bear the increase, and that it was built with the consensus of workers, employers and the State.[3]
- For the Finance Ministry, lowering the weeks required matters in a labour market marked by informality, which keeps a large majority of workers from building up the required years: more than twice as many would reach the guaranteed pension.[3]
- Morena deputy Pablo Gómez presented it as an urgent reform that targets the State’s social quota on the lowest wages and lowers AFORE fees, which he said were higher than anywhere else in the world; the Movimiento Ciudadano group voted for it as the first time in years that new contribution duties were placed on employers.[6]
- CONSAR presented the first capped fees, for 2022, as the largest fall since the AFORE were created, saving workers more than 11.8 billion pesos; in 2025 the Supreme Court found that the cap protects workers’ savings in a system of public order that is not a free market.[8][11]
According to its opponents
- The PRD group, whose 12 deputies voted against, argued that the reform’s fiscal cost was never estimated, as the budget law requires, that nothing was planned to check that employers declare real wages as contributions rise, and that it props up the « failed » AFORE model instead of rebuilding social security.[6][7]
- The competition authority COFECE recommended not approving the fee cap as drafted: a cap tied to three countries is inflexible, and the bill did not show that those systems are comparable; it proposed fee regulation based on transparent criteria instead.[10](secondary source)
- Movimiento Ciudadano, while voting for it, called the reform insufficient: no minimum replacement rate, pensions still too low, and a guaranteed pension paid from the Treasury that removes the AFORE’s incentive to earn good returns and has no matching revenue.[6]
- A PRI deputy, whose group voted for it, relayed doubts from employers and workers: how many workers will actually benefit, and to what extent the unemployment caused by the Covid-19 pandemic will weigh on it.[6]
Indicators to watch
- Public pension spending (old age and survivors) · OECDSee the card →
- Average effective age of labour market exit · OECDno Citoyen card yet
- Informal employment · ILOSee the card →
- Employment rate of people aged 55-64 · OECDSee the card →
- Share of people aged 65 and over · World BankSee the card →
- Fees charged by the AFORE (% of assets managed) · CONSARno Citoyen card yet
- Old-age and guaranteed pensions granted under the 1997 scheme · IMSSno Citoyen card yet
Sources
- [1]DECRETO por el que se reforman, adicionan y derogan diversas disposiciones de la Ley del Seguro Social y de la Ley de los Sistemas de Ahorro para el Retiro · DOF 16-12-2020 –Cámara de Diputados del H. Congreso de la Unión (reproducción del Diario Oficial de la Federación), December 16, 2020
- [2]Ley del Seguro Social: reformas publicadas en el Diario Oficial de la Federación –Cámara de Diputados del H. Congreso de la Unión
- [3]Comunicado No. 061: Gobierno de México anuncia reforma para fortalecer el Sistema de Pensiones –Secretaría de Hacienda y Crédito Público, July 22, 2020
- [4]Mensaje del Secretario de Hacienda, Arturo Herrera, Iniciativa de Reforma al Sistema de Pensiones –Secretaría de Hacienda y Crédito Público, July 22, 2020
- [5]Diario de los Debates, martes 29 de septiembre de 2020, sesión 11, anexo B: iniciativa del titular del Poder Ejecutivo Federal (Ley del Seguro Social y Ley de los Sistemas de Ahorro para el Retiro) –Cámara de Diputados del H. Congreso de la Unión, September 29, 2020
- [6]Diario de los Debates, miércoles 9 de diciembre de 2020: discusión del dictamen de la Comisión de Hacienda y Crédito Público (Ley del Seguro Social y Ley de los Sistemas de Ahorro para el Retiro) –Cámara de Diputados del H. Congreso de la Unión, December 9, 2020
- [7]Votaciones de la Cámara de Diputados, 9 de diciembre de 2020: dictamen de las Leyes del Seguro Social y de los Sistemas de Ahorro para el Retiro (en lo general) –Gaceta Parlamentaria, Cámara de Diputados, December 9, 2020
- [8]Boletín de prensa No. 15/2021: La Junta de Gobierno de la CONSAR autoriza las comisiones que cobrarán las Afores para 2022 –Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR), November 29, 2021
- [9]DECRETO por el que se reforman, adicionan y derogan diversas disposiciones de la Ley del Seguro Social […] para la creación del Fondo de Pensiones para el Bienestar · DOF 30-04-2024, edición vespertina –Cámara de Diputados del H. Congreso de la Unión (reproducción del Diario Oficial de la Federación), April 30, 2024
- [10]El ente antimonopolios sugiere evitar el tope a las comisiones en Afores –Expansión, November 20, 2020 · secondary source
- [11]Corte avala tope a comisiones por administrar Afores; se protege ahorro de los trabajadores, afirma –El Universal, October 30, 2025 · secondary source