Economics: The Pros and Cons of SAR at 20

MEXICO - Report 24 Jul 2017 by Mauricio González and Esteban Manteca

The country’s the Retirement Savings System (SAR), which is based on personalized savings accounts, turned 20 this month and it has quite a number of accomplishments worth celebrating. SAR system advantages include the way its individual accounts afford greater transparency in resource availability while channeling savings into various public or private sector investments, and freeing public finance of contingent liabilities that would otherwise have existed.

In the aggregate, 2.98 trillion pesos ‒ close to 25% of domestic savings and 14.6% of GDP ‒ have been accumulated in these accounts, and their annual average yields since 1997 have been a nominal 11.55% and a real 5.59%.

In addition to the considerable savings that have been accumulated, the SAR has helped to significantly extend average investment terms, and in that way has generated long-term financing for both the public and private sectors.

But problems remain. On average, the amount of a pension in Mexico as a percentage of the wage the person received in the last phase of their working lives is relatively low, and a combination of policies is needed to raise such replacement rates, as well as to provide incentives to attract the majority of Mexican workers, who remain in the informal economy and lack access to such social protection programs.

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