The pension system in Mexico has undergone a process of profound transformations over the last three decades, driven by the need to address financial imbalances, demographic changes and labor market pressures. During the 1990s, the distribution schemes of the Mexican Institute of Social Security (IMSS) and the Institute of Security and Social Services of State Workers (ISSSTE) predominated in Mexico.
The creation of the pension savings system in 1992 paved the way for individual capitalization. However, the 1997 structural reform was the one that consolidated the transition towards a system based on accounts managed by AFORES (Pension Fund Administrators). Since then, the model has continued to adapt through key milestones such as the 2007 ISSSTE reform, the introduction of the multi-fund scheme and generational funds, the 2020 reform which gradually increased contributions and made access to pensions more flexible and, most recently, the creation in 2024 of the Wellbeing Pension Fund.
All these changes have sought to ensure the financial sustainability of the system and expand social protection, although challenges related to pension coverage and adequacy persist in a country characterized by very high levels of informal work.
At the same time, retirement savings have acquired a growing role in the Mexican economy. Over time, the resources managed by AFORES have ceased to be exclusively a financing mechanism for future pensions to become a central player within the financial market. This accumulation of assets has had direct implications on macroeconomic dynamics, in particular on growth, employment and domestic investment.
A recent study that I carried out together with two Chilean colleagues (Felipe Larraín and Hermann González) allows me to measure this influence on the basis of an econometric framework applied to quarterly data between 1997 and 2024. The most important conclusions of this study were recently presented at the AMAFORE 2025 Meeting. The results show that pension funds in Mexico explain around 3.6% of the cumulative growth of real GDP in this period, with a more pronounced effect after the ISSSTE reform in 2007. Through its impact on economic activity, the system has also contributed to job creation. It is estimated to have contributed 1.3% of the formal employment growth recorded in the IMSS, which equates to almost 160,000 jobs. In investment, the role is even more evident: of the 4.2 percentage points growth in domestic investment as a percentage of GDP between 2003 and 2024, 2.7 were due to pension savings, which equates to 64% of the observed increase.
These findings become more relevant when compared with the experience of Chile, a pioneer country in pension reform in the Latin American region. Although the methodology used is the same, the results are not strictly comparable because the evaluation periods and the maturity of the systems differ. In Chile, where individual capitalization was implemented in 1981, funds explain 7% of real GDP growth, 2.6% of total employment, and about a third of investment growth. The effects for Mexico are smaller relative to GDP and employment, but show a larger effect on investment, perhaps reflecting the importance of pension savings as a source of financing in a context of low public savings.
Taken together, the empirical evidence from both countries confirms that pension reform has transcended its original function of providing income in old age to become a pillar of the economy. Its effects extend beyond the mere pension sphere and reach central dimensions in macroeconomic indicators, such as growth, formal job creation and domestic investments.
International comparison reinforces this conclusion: despite differences in context and magnitude, in both Mexico and Chile individual capitalization systems have functioned as relevant drivers of economic development in recent decades, which underlines the importance of continuing to strengthen the institutional framework that supports these systems in order to ensure their sustainability and their economic and social impact.
Finally, the results of our study show that the experiences of Chile and Mexico can serve as a reference for other economies that intend to modify their pension systems seeking to improve the retirement income of their population through a financially sustainable system with favorable impacts on the economy.
