Pension Spending as a Percentage of Federal Budget
In 2025, contributory pensions accounted for 18 out of every 100 pesos in the federal government’s budget, marking a historical maximum.
According to data from the Secretariat of Public Finance and Credit (SHCP), contributory pensions represented 17.9% of the government’s total net expenditure from January to November 2025. In the same period in 2024, contributory pension spending was 1.512 trillion pesos, an 8.7% real growth compared to the previous year.
Types of Pensions and Their Funding
Contributory pensions are granted to retirees who, during their working life, had to contribute (or whose employers did) to social security institutes to finance their pensions or those of other retirees. Non-contributory pensions, on the other hand, are received by individuals who did not contribute any portion of their salary and are fully funded by the government, such as the Universal Pension for Older Adults, representing 6.13% of total expenditure in 2025.
The contributory pension expenditure category includes, for example, the retirement systems of the Mexican Social Security Institute (IMSS) and the State Workers’ Security and Social Services Institute (ISSSTE). These two pension schemes are the largest burden on the country’s public finances, according to Jorge Cano from Mexico Evalúa.
Moreover, the government must also pay pensions for retirees from Pemex, the Federal Electricity Commission (CFE), Luz y Fuerza del Centro, as well as railway workers and the armed forces. Additionally, the total pension expenditure includes government contributions to some workers’ private accounts (Afores), though this represents less than 5% of the overall pension expenditure, Cano added.
Impact of Recent Pension System Changes
Jorge Cano from México Evalúa explained that while it’s normal for pension spending to grow in countries with aging populations, Mexico is concerned that the pension liability grows at a faster rate than government income.
“If there’s no growth in income, there will be less fiscal margin, and the government will have to pay pensions at the expense of more cuts in areas like education, health, and security,” he said.
Recent changes to Mexico’s pension system, such as the gradual reduction of the retirement age for ISSSTE contributors, will further strain government finances. In 2024, President Claudia Sheinbaum issued a decree in the Federal Register to reduce the minimum retirement age for ISSSTE workers by three years.
Thanks to an agreement between the federal government and the National Union of Education Workers (CNTE), the minimum retirement age will remain frozen at 56 for women and 58 for men until 2028, after which it will decrease every three years.
- 2028: 55 for women and 57 for men
- 2031: 54 for women and 56 for men
- 2034: 53 for women and 55 for men
This agreement reverses the progressive increase in retirement age that would have ended in 2028 due to the 2007 reform of the ISSSTE law. The reform introduced state workers to the individual account pension system in Afores, giving those already working before April 1, 2007, the option to join the new system or stay in the old redistribution system.
Those who chose to remain in the previous system (90%) were incorporated into the “tenth transitional” modality, with the condition that their minimum retirement age would increase every two years.
In 2010, before the age increment began, women’s minimum retirement age was 49, and men’s was 51.
Fiscal Cost of Reduced Retirement Age
Government estimates suggest that the reduction in retirement age will have a fiscal cost exceeding 36,000 million pesos between 2025 and 2030. However, experts and ISSSTE projections warn that the peak of “tenth transitional” retirees will arrive between 2030 and 2040, meaning that the state will need to allocate more resources due to the reduced retirement age during that decade.
Key Questions and Answers
- What are contributory and non-contributory pensions? Contributory pensions are granted to retirees who contributed (or whose employers did) to social security institutes during their working life. Non-contributory pensions are fully government-funded and received by individuals who did not contribute any portion of their salary.
- What changes were made to the pension system in Mexico? The minimum retirement age for ISSSTE workers was reduced gradually, freezing it at 56 for women and 58 for men until 2028, after which it will decrease every three years.
- What are the concerns regarding pension spending in Mexico? While pension spending growth is normal in aging populations, Mexico is concerned that the pension liability grows faster than government income, potentially leading to cuts in essential areas like education and health.
- What is the projected fiscal cost of reducing the retirement age? The reduction in retirement age is estimated to have a fiscal cost exceeding 36,000 million pesos between 2025 and 2030.
