Competitiveness of Mexican pension funds and regulatory policy

Abstract

The competitiveness of Mexican mandatory retirement funds and the impact of public debt on returns are evaluated in this essay. Detailed calculations of commissions and rates of return are developed and related to rates paid by federal bills. Fixed effect and SUR regression models are used to measure the impact of public debt on returns. Results show the following: (a) these funds are the best savings options available to workers; (b) all providers have converged to similar commissions measured in pesos; (c) historically, returns have been very similar across providers; (d) the risk of significant losses is present due to inadequate diversification; and (e) a heavy public debt induces lower returns. The main public policy recommendations are (a) a lighter public debt and international diversification can improve yields, and (b) workers must be informed of the money value of commissions. Additional research is needed to measure the issues for workers of different wage levels and intensity of participation (given high levels of informality). The detailed calculation of commissions, rates of return, and of the impact of public debt, is an original contribution. In conclusion, excess public debt in pension funds damages yields, there is room to improve risk regulation and commissions, to achieve more competitiveness.