Last year, to increase voluntary savings in Mexico’s pension system, the pension regulator teamed up with 7/11 retail stores and Telecomm to create channels for people to contribute to pensions, whether they receive an income within the formal labor market or not. The system added about 3,600 new contribution locations for the 53 million people in Mexico who have a public pension.
Imagine walking into your local convenience store to buy a pack of gum (or chips, or beer, or a newspaper) and deciding to contribute as little as $3 to your pension, just like you would top-up your mobile phone or buy a lottery ticket. You would give the cashier your citizen ID number (twice, just to make sure), and the cashier would give you a receipt for the transaction. The funds would travel to a centralized switch which holds the national database called Procesar and then be directed to one of 11 pension fund administrators. The funds would enjoy a 10 percent return over three years—a higher rate than savings accounts in Mexico offer—enabling them to double within 20 years.
The new system was created by the pensions regulator, CONSAR, in response to the problem of low contribution rates among existing accounts and the recognition that many, if not most people in Mexico are financially unprepared for later life. Anyone who has ever been a part of the formal labor system has a pension in Mexico (even, say, those with a short-term construction job), though many people are unaware of it. Currently, the system includes 53 million people, slightly under half of Mexico’s total population. However, an estimated 58 percent of Mexicans are informally employed and therefore without a constant connection to the pension system. CONSAR’s goal is to increase the number enrolled in the system, the number who make voluntary contributions, and the frequency with which they make them in order to provide a dignified pension to all Mexican citizens. The scale of the problem is enormous. Of the 53 million contributory pension accounts, only 58,000 received voluntary accounts in 2014 (less than 1 percent).
While pension reform to increase automatic contributions for the formally employed is being considered in Mexico’s Congress, such a bill would not cover the informally employed labor force, and would help very little of those who either have infrequent and intermittent work or workers who are paid in part through cash and under-declare their income.
CONSAR’s policy designers are betting that they can increase both enrollment and participation by creating convenient channels to contribute to pensions. There are two major challenges. The first is the complexity of the pension system. The pension funds in Mexico are held in 11 privately operated funds. They pass through a switch between the retail contribution collector and Telecomm that allows the individuals’ money to be directed to the correct fund. Procesar plays a big role in streamlining contributions to ensure that despite a complex system money is properly directed and can be confirmed. This challenge has already been addressed.
The second challenge remains outstanding, and it is that people are not yet participating in the system in a way that will make a major dent in their preparedness for later life. CONSAR is considering ways to analyze the behavior of clients as they interact with their long-term savings to create better incentives, ways to diversify the channels for contributions, ways to educate people on their pensions, and ways to nudge people to contribute, like having cashiers ask customers if they would like to contribute to their pension when they pay. This challenge is much more daunting than the first, although initial results show promise, as 88 percent of contributions through these retail chains were done by people who had not made voluntary contributions towards their pension before.
CONSAR is looking forward to keeping those interested in financial inclusion updated on their progress—so if you have any comments or questions please comment on this post below. And if you know someone who has ever worked in Mexico, make sure you tell them they can make a contribution to their pension through their local 7/11!
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