AFORE: WHAT ARE THEY, USEFULNESS AND NECESSITY - DUDAS - 2024

The Retirement Fund Administrators (AFORE) are a group of financial institutions created in Mexico that have the purpose of protecting the retirement of all workers in the country, whether they are dependents of a company or work on their own.

The AFORE were created on July 1, 1997 to guarantee the protection of Mexican retirees. From that moment on, anyone who generates income through a job can be part of the savings plan.

The AFORE seek to promote a better economic situation for retirees. Source: pixabay.com

For this, the employer and employee must register with the Mexican Institute of Social Security (IMSS). Subsequently, the AFORE will be in charge of investing the resources so that the retiree obtains greater profits at the time of retirement.

What are the AFORE?

The AFORE originated in 1997 in Mexico in order to protect all the savings of workers through private financial institutions, which manage and invest all the money collected.

Before 1997, the funds of all retirees went to a single collective account managed by the Mexican Institute of Social Security (IMSS). This account did not generate any additional income.

When the new Law was promulgated and established, an individual account was granted to each Mexican worker. From that moment on, the contributions and earnings in the new retirement fund began to be considered.

How is the proccess

To be part of the Retirement Fund Administrators, companies and workers must be registered with the Mexican Institute of Social Security (IMSS).

Then the worker will select the financial institution of their preference, and later they must choose the type of AFORE that suits their needs.

The AFORE are for all Mexicans who generate income, and they do not necessarily have to belong to a company; that is, it is also accessible to independent workers.

In the case of being an independent worker, they can create an account and make deposits directly at the financial institution of their choice.

What is the amount that is discounted?

Every month, each employee dependent on a company will be deducted 6.5% for AFORE, which will go directly to the individual account of each employee.

In this sense, the employer will contribute 5.15%, the federal government 0.225% and the employee 1.125%, which gives a total of 6.5%. This percentage will begin to generate profits for the saver from the first moment.

In the case of the percentage in the AFORE of independent workers, the values ​​will depend exclusively on each person.

Body that regulates AFORE

To avoid any irregularity, financial institutions are authorized by the Ministry of Finance and Public Credit (SHCP). Likewise, the AFORE are supervised by the National Commission for the Retirement Savings System (CONSAR).

In this sense, CONSAR is in charge of regulating the Retirement Savings System (SAR), which in turn is the one that regulates the individual accounts of each worker.

To ensure that the investment process is successful, the AFORE work in conjunction with the Retirement Fund Investment Societies (SIEFORE). SIEFORE is responsible for investing and generating higher income for all retirees.

Through SIEFORE, the Retirement Fund Manager receives and processes the total and partial withdrawals of the savings funds.

For this, four groups of SIEFORES were established according to the age of each saver, in order to protect the investments of both workers who are close to retirement and those who are starting. SIEFORE are classified as:

SIEFORE 4

Between 27 and 36 years old.

SIEFORE 3

Between 37 and 45 years old.

SIEFORE 2

Between 46 and 59 years old.

SIEFORE 1

Over 60 years old.

What is its usefulness?

With the creation of the AFORE, the government of Mexico sought to protect and improve the conditions of retirees at the time of their retirement.

In the past, it was impossible to think of a better future as there were not great benefits to be gained from the pension-related discounts applied to workers.

Through various mechanisms, the AFORE guarantee that the amount saved does not lose its value. An individual who does not register her pension fund in an AFORE will see her investment devalue in the long term, since she will not obtain significant profits.

On the other hand, participation in the AFORE guarantees that the investment will increase and obtain returns above inflation. In this way, economic stability is guaranteed in the future.

Voluntary contributions and relevant information

The AFORE allow their savers to make voluntary contributions, which would further increase profits: those who make extra payments will obtain greater benefits in their old age.

On the other hand, so that its clients are informed of the movement of the savings fund, the specific AFORE sends a quarterly account statement with detailed information on each operation carried out.

This ensures beneficiaries that funds are not being misused.

Why are they necessary?

The AFORE are necessary for saving because they guarantee the increase of this in a safe and risk-free way, since it will not be affected by economic fluctuations in the market.

They seek to protect the worker in the future; Therefore, being part of this system can make a remarkable difference in the life of each individual.

In addition, the AFORE guarantee that the money invested always produces a profit, even when the saver is unemployed.

Adjustments if necessary

At the time of receiving the pension, the worker receives between 25 and 30% of the last salary earned (this in case of only saving the amount set by law).

In the event that the AFORE savings of a retiree are not sufficient for their maintenance, the Mexican government will grant the pensioner a contribution equivalent to one minimum wage per day.

It is worth noting that some of these factors will depend on the financial institution that is chosen. Therefore, the worker is recommended to know which one offers the best total net return, what are the services offered and what is the cost of commissions.

References

1. “10 things you should know about your AFORE” (August 29, 2014) in OCCMundial. Retrieved on April 27, 2019 from OCCMundial: occ.com.mx.
2. "Administrators of Retirement Funds" in Wikipedia. Retrieved on April 27, 2019 from Wikipedia: es.wikipedia.org.
3. Ricardo H. Zavala “Pensions and Benefits in Mexico (January 9, 2019) in Lexology. Retrieved on April 27, 2019 from Lexology: lexology.com.
4. "The AFORE and its operation" in Economics. Retrieved on April 27, 2019 from Economy: economia.com.mx.
5. Jeanette Leyva "What makes the Afore so important?" (July 3, 2017) in El Financiero. Retrieved on April 28, 2019 from El Financiero: elfinanciero.com.mx.
6. "National Commission of the Retirement Savings System, what do we do?" in Government of Mexico. Retrieved on April 28, 2019 from the Government of Mexico: gob.mx.
7. "What is it, how it works and how do you earn money with the Afore" at CORU. Retrieved on April 28, 2019 from CORU: coru.com.
8. "Learn about the benefits of being affiliated with an AFORE" (September 14, 2015) in Profuturo. Retrieved on April 28, 2019 from Profuturo: profuturo.mx