Mexico - Technical Note on Industrial Organization and Competition : Pension System in Mexico
Mexico, as many other countries in Latin America, has adopted an individual capitalization pension system. The design of these pension reforms confers the administration of pension funds to private companies. Under these schemes competition plays a...
| Format: | Working Paper |
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| Language: | English en_US |
| Published: |
Washington, DC : World Bank
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/279711468123256748/Mexico-Technical-note-on-industrial-organization-and-competition-pension-system-in-Mexico http://hdl.handle.net/10986/37387 |
| Summary: | Mexico, as many other countries in Latin
America, has adopted an individual capitalization pension
system. The design of these pension reforms confers the
administration of pension funds to private companies. Under
these schemes competition plays a key role, keeping prices
low, a good quality of service, and an efficient investment
allocation. However, the extent of competition in the
reformed systems has been a common concern for most of the
countries where it has been implemented. Moreover, when
competition has been intense, like in Chile between 1994 and
1997, marketing expenses were extremely high. This outcome
may not be desirable if it does not benefit future
pensioners and is an unnecessary increase in costs of
providing the service. The performance of competition in
this industry is largely related to the demand
characteristics, which is by design highly insensitive to
prices, rates of return or quality of service, given that
this is a compulsory product with government guarantees.
Regulations in this market also significantly affect the way
in which competition operates. Aiming to a better degree of
competition, the private pension system's regulator in
Mexico has introduced innovate rules. These regulations have
focus in inducing higher demand elasticity to prices and
lowering barriers to entry. This has entailed lower prices,
lower profits, and the entrance of new firms. The paper is
structured as follows: section A gives pension reform in
Mexico; section B gives the role of the government; section
C deals with the afore industry; section D is commission
structure; section E gives potential barriers to entry;
section F focuses on changes in regulation that promote
price competition; section G gives comments on policy
implications and prospects; and section H gives conclusions
and policy recommendations. |
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