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Electricity commission, union agree to reduce retirement age from 65 to 55

'Politically motivated' plan will be costly, critics warn

The electrical workers union has struck a deal with the Federal Electricity Commission (CFE) that lowers the general retirement age for the state company’s workers from 65 to 55.

Under the new 2020-22 collective agreement between Suterm and the CFE, male workers can retire at 55 if they have completed 25 years of service. They can retire at an even younger age provided they have been with the company for 30 years.

Female workers can retire after 25 years of service regardless of their age.

Under the previous agreement men retired at 65 after 30 years of service or at a younger age provided they had put in 40 years. Women previously retired at 60 after 30 years of work or at a younger age if they had been with the CFE for 35 years.

Some pension experts were critical of the move, arguing that it will hurt the national budget and increase inequality.

Bernardo González, president of the Amafore pension funds association, said the agreement will “cost the country a lot” because the government will be paying pensions earlier and for longer. He also said the new scheme was unfair because it favors high-wage earners over low-wage ones.

When the previous scheme was introduced in 2016, it was estimated that it would save more than 161 billion pesos (US $7.3 billion) because it increased retirement ages by five to 10 years.

Alejandra Macías, a director at the Center of Economic and Budget Research, a think tank, said the deal will increase the inequality between Mexico’s different pension schemes.

Speaking during a virtual panel discussion on “the pensions tsunami,” she said that pensions for retired CFE workers currently average just over 803,000 pesos (US $36,500) per person per year whereas retirees on Mexican Social Security Institute pensions only get an average of just under 81,000 pesos, or about 10% of that amount.

Macías said that if it isn’t revised, the new CFE scheme will contribute to government spending on pensions increasing from 4.2% of GDP currently to 6% by 2030.

During the same discussion, Pedro Vásquez Colmenares, an economist and author of a book entitled Pensions in Mexico: the next crisis, said that reducing the retirement age goes against what is happening in the rest of the world.

To keep pension systems sustainable as life expectancy increases people are generally being required to work longer, he said.

Vásquez said that life expectancy in Mexico is increasing by one year every decade or so and therefore “we have to extend the productive stage” of people’s lives. “Suterm is doing the opposite,” he said.

Severo López Mestre, a partner at the consultancy firm Galo Energy, charged that the reduction in the pension age is politically motivated, designed to win votes for the ruling Morena party at next year’s midterm elections.

He told the newspaper Reforma that the state-owned firm is already struggling to find money to build new power plants. Now it will see increased costs by having to pay pensions to younger retirees as well as salaries to their replacements.

“How is it possible for them to make this change? It’s a double whammy for the CFE because if you retire someone at 55 you lose someone at their most important productive age,” López said, explaining that such workers are valuable because of the knowledge and training they can pass on to the next generation.

At age 55, workers are capable of giving 10 years more service, he argued.

An unnamed CFE source told Reforma that the pension change will cost the company 100 billion pesos in the short term, leaving the company in the red as soon as next year.

Snowballing pension payments have been regarded for some time as a time bomb for the federal government. But President López Obrador presented a plan last month that seeks to address the issue while obliging employers to increase their pension contributions in the coming years.

Some experts have questioned whether it does enough to reduce the government’s pension obligations while ensuring a dignified retirement for all workers.

Vásquez likened the pension system in its current state to a car that needs four new tires. But all López Obrador’s proposed pension reform does is put air in one of them, he said.

“I wouldn’t call it a reform,” Vásquez said, asserting that the plan only makes a few “parametric changes” to the current pension system.

Source: El Economista (sp), Reforma (sp) 

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