Wednesday, June 12, 2024

Pensions will consume 16.5% of the federal budget next year

About one-sixth of the 2022 federal budget will be used to pay pensions as a record 1.17 trillion pesos (US $56.6 billion) will end up in the pockets of retired workers next year.

According to the 7-trillion-peso (US $338.8 billion) budget approved in the lower house of Congress last Sunday, the outlay on pensions will increase 6.2% in 2022 and represent 16.5% of the total budget.

The 1.17 trillion pesos will go to retired government employees, including those who worked for state-owned companies such as Pemex and the Federal Electricity Commission (CFE), and other former workers covered by Social Security Institute (IMSS) and State Workers Institute (ISSSTE) pension schemes.

The federal government’s pension costs have been increasingly steadily in recent years, rising from 736 billion pesos in 2015 to just under 990 billion pesos in 2019 before breaking the 1-trillion-peso barrier for the first time in 2020.

Ricardo Velázquez Luna, a pensions expert and general director of financial consultancy Asesores Patrimoniales, told the newspaper El País that the government’s snowballing pension costs are the result of “bad planning in the pensions system that wasn’t corrected until 1997.”

He predicted that pension costs will continue to grow over the next five to six years.

IMSS will get about 1 trillion pesos in funding next year and almost two-thirds of that amount – 636.4 billion pesos – will go to pay pensions.

Velázquez said the proportion of IMSS’ outlay on pensions is too high, leaving the institute with limited funds to spend on healthcare.

“They [the government] has to allocate it resources that can be used … [to benefit] Mexicans’ health,” he said.

Facing a similar scenario, ISSSTE will spend 70% of its 397-billion-peso budget on pensions, while Pemex and the CFE will distribute just under 70 billion and 50 billion pesos, respectively, to its former workers next year.

More than 238 billion pesos will go to the payment of the government’s “wellbeing pensions” for seniors next year, a 76% increase compared to 2021.

Velázquez said the government will need to collect more tax to cover its pension expenses and other funding obligations.

However, 56% of economically active people don’t pay taxes because they work in the informal sector, according to data from the national statistics agency INEGI. That figure rose recently as more people moved into that sector after losing jobs in the formal economy during the coronavirus pandemic.

With reports from El País 

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