Introduction
The Mexican federal government has been allocating more funds to pensions and retirements than to financial participations for states and municipalities since 2020. This shift is attributed to an aging population, increased life expectancy, and stagnant federal participable revenue.
Key Financial Figures
From January to May 2025, the administration of Claudia Sheinbaum spent 626.332 billion pesos on pensions and retirements, accounting for 17% of the public sector’s net expenditure. Meanwhile, financial participations for states and municipios received 624.039 billion pesos during the same period, according to data from Mexico’s Secretariat of Finance and Public Credit (SHCP).
Reasons for the Shift
Jorge Cano, coordinator of the public expenditure program at Mexico Evalúa, outlined three primary reasons for this trend in public finances:
- Aging Population and Increased Life Expectancy: The demographic trend is driving the rise in contributory pensions, such as those from the IMSS, ISSSTE, CFE, and Luz y Fuerza. This trend will persist due to an aging population and increased life expectancy.
- Growth in Non-Contributory Pensions: The increase in non-contributory pensions, like the Pension for Elderly Adults, stems from a decision made during the previous administration and maintained in the current one. These pensions do not rely on employee contributions.
- Stagnant Federal Participable Revenue: The growth in federal participations has slowed due to a decline in petroleum revenues, which affect the pool of funds available for distribution between the federal government and states.
Historical Context
Prior to 2020, the federal government allocated more resources to state participations than pensions for Mexican retirees. In some years, like 2001, the government spent 157% more on participations than pensions.
Federal participations, known as Ramo 28, are resources transferred by the federal government to states and municipalities for their own expenses. These funds originate from federal taxes, mining rights, and a portion of petroleum revenues.
Impact of Reduced Retirement Age
Last week, President Claudia Sheinbaum published a decree in the Diario Oficial de la Federación (DOF) to reduce the minimum retirement age for ISSSTE workers by three years.
Cano explained that this decrease in retirement age will increase the federal government’s pension liability, leading to even more spending on pensions in the coming years.
- Increased Pension Liability: With longer life expectancy and early retirement, the government will need to finance each retired individual for a more extended period, ultimately raising pension payouts.
- Projected Constant Pension Spending: Based on Mexico’s demographic projections, the government’s pension spending is expected to grow steadily until 2050, indicating continued financial pressure on public finances for many years to come.
Key Questions and Answers
- What is causing the shift in federal spending from participations to pensions? The aging population, increased life expectancy, and stagnant federal participable revenue are driving this trend.
- How will reducing the retirement age impact pension spending? It will increase the pension liability, leading to more spending on pensions in the future.
- What are non-contributory pensions, and why have they grown? Non-contributory pensions are those not funded by employee contributions, like the Pension for Elderly Adults. Their growth is due to a decision made during the previous administration.
