What is a Lifetime Annuity and How Does it Work?
Upon reaching retirement age, workers have two options for retiring and accessing their afore funds: the programmed withdrawal method or the lifetime annuity. If they choose the latter, it’s crucial to understand how this pension scheme functions.
While the resources come from the savings accumulated by the worker throughout their working life, the pension amount will be influenced by macroeconomic indicators at the time of retirement. Additionally, workers must meet certain requirements to access this pension scheme.
Key Players in the Lifetime Annuity
Currently, the insurance companies offering this service are Profuturo, Pensiones Sura, Pensiones Banorte, GNP Pensiones, BBVA Pensiones, and soon Banamex, according to the National Commission for the System of Retirement Savings (Consar).
Calculating the Pension Amount
The monthly amount received is determined by the accumulated balance and the value of the lifetime annuity unit. This value represents the resources needed to finance one annual pension unit, according to Martha León, the financial vice president of Consar.
These values are sensitive to interest rates, and government securities like udibonos or bondes M are used as a reference. Gerardo Chavaría, the business initiatives and commercial support manager at Afore Sura, mentioned that the values of the lifetime annuity unit can be checked on the Consar website to estimate the expected pension amount.
To calculate the pension, divide the accumulated balance in the afore by the value corresponding to your gender and age. The result is the annual pension, which can be divided by 12 to estimate the monthly pension. The lower the lifetime annuity unit value, the higher the pension.
Requirements for the Lifetime Annuity
According to the current regulations of the Retirement Savings System, workers who can access this pension scheme are those who work under the IMSS Law 97, meaning they began formal employment cotributions on July 1, 1997, or later.
Workers must have a minimum of cotization weeks if they’re applying for unemployment pension or be 65 years old for an old-age pension. Moreover, the accumulated balance in the afore account must be at least 1.3 times the guaranteed pension amount, as informed by Martha León.
The minimum cotization weeks for unemployment pension will be 850 in 2025 and increase by 25 weeks annually until reaching 1,000 weeks in 2031.
To increase the accumulated balance, both spokespersons recommend using voluntary savings mechanisms provided by afores. It’s also essential for workers to consider their retirement scheme in advance.
Key Questions and Answers
- What is a lifetime annuity? A pension scheme that guarantees monthly income until the worker’s death.
- Who offers lifetime annuities? Currently, Profuturo, Pensiones Sura, Pensiones Banorte, GNP Pensiones, BBVA Pensiones, and soon Banamex provide this service.
- How is the pension amount calculated? Divide the accumulated balance in your afore by the value corresponding to your gender and age, then divide the annual pension by 12 for a monthly estimate.
- What are the requirements for a lifetime annuity? Workers must have a minimum number of cotization weeks for unemployment pension or be 65 years old for an old-age pension. The afore account balance must also be at least 1.3 times the guaranteed pension amount.
