Mexico Case Study - How Incentives Can Boost Pensions For Informal Sector Workers

Overview

This case study examines Mexico’s pension system, which includes a large funded pillar managed through Afore individual retirement accounts, with assets close to 20% of GDP. While the system provides strong incentives for formal workers, including the Cuota Social flat-rate government contribution, a minimum pension guarantee, and a Solidarity Supplement, these incentives do not extend to informal workers. As a result, voluntary pension participation among informal workers remains extremely limited, covering less than 1% of the informal labour force, despite accessible contribution channels through banks, convenience stores and digital payments. Many informal workers instead rely on expanding non-contributory pensions in old age.

Mexico’s experience shows that digital infrastructure and convenient products alone cannot expand pension coverage. Extending rules-based top-ups, refundable tax credits, or matching contributions to informal workers could significantly improve participation.