The Mexican System: Afore and Unemployment Withdrawals
In Mexico, there is no unemployment insurance. The closest alternative is the partial unemployment withdrawal from an Afore account. However, what few people realize is that this action significantly reduces both the accumulated savings and the weeks of contributions recorded with the Mexican Social Security Institute (IMSS), a crucial factor for securing a pension.
Who is César Islas Peña?
César Islas Peña, the General Coordinator of Economic Studies and Special Projects at the National Commission for the System of Retirement Savings (Consar), warns about the implications of unemployment withdrawals. According to Article 198 of the Social Security Law, weeks of contribution are an indispensable requirement for pension eligibility.
The Consequences of Unemployment Withdrawals
When making an unemployment withdrawal, the IMSS deducts contribution weeks from the retirement subaccount in proportion to the amount withdrawn. These weeks can only be recovered if the worker fully or partially returns the withdrawn money.
Example of Unemployment Withdrawal Impact
Islas Peña illustrates the impact of these decisions with an example: A 43-year-old worker with 520 contribution weeks and a recent salary of 13,758 pesos accesses an unemployment withdrawal of 34,000 pesos through a manager who falsely inflates their salary. In exchange, the worker pays a commission of 10,000 pesos.
Reform Proposal: Combating Fraudulent Practices
Currently, the Senate is debating a reform to curb identified fraudulent practices by Consar: unaffiliated managers gave workers with inflated salaries false dismissals to access larger unemployment withdrawals in exchange for commissions up to 30% of the withdrawn amount.
Key Questions and Answers
- What is the impact of unemployment withdrawals on my pension? Unemployment withdrawals reduce both your accumulated savings and contribution weeks recorded with the IMSS, which is crucial for pension eligibility.
- How does fraud affect my pension? Fraudulent practices, such as those by unaffiliated managers, can significantly deplete your savings and prevent you from accumulating enough contribution weeks for a pension, forcing you to work beyond the age of 65.
- What is the proposed Senate reform addressing? The reform aims to tackle cognitive biases like present-bias and preference for immediate rewards over future benefits, reducing the incentive for managers to exploit workers’ impulsivity, lack of information, and financial vulnerability.
In summary, understanding the implications of unemployment withdrawals and fraudulent practices is essential for safeguarding your long-term financial well-being. By staying informed and making prudent decisions, you can better align your choices with your long-term interests.
