Afores: Find out what they are and how they support your retirement

According to the National Population Council (CONAPO), 16.5% of the Mexican population will be over the age of 65 by 2050. This means growth of more than double the number of people of retirement age compared with 2020.

Armando Martínez, Director of the Bachelor’s Degree in Business Transformation and Strategy and the Bachelor’s Degree in Finance at the Tec’s León campus; and Roxana Lastiri, full professor of Finance clear up these doubtsabout Afores.

Afores (Retirement Fund Administrators) are financial institutions responsible for administrating the retirement funds of Mexican workers.

These institutions provide different investment options, enabling workers’ money to grow over time and obtain a return. When workers retire, the Afores pay their pensions.

Understanding how Afores work

This is why it’s important to understand what they are, what they’re for, and how to choose a Retirement Fund Administrator (Afore).

1. Acts of 1973 and 1997

2. SIESFOREs: What they’re for and what benefits they have

3. Find out which Afore you have

4. Review rates of return, fees, and services before switching

5. Don’t put it off! Review your yearly returns

6. Beneficiaries and wills

7. Diversify savings and investments

"The key lies in creating a strategy that adapts to each individual's age and personality”.- Roxana Lastiri.

The Social Security Acts of 1973 and 1997 mark a crucial change to the pension system in Mexico, said Martínez.

The Act of 1973 established a pension scheme based on contributions made by active workers to a common fund for financing retired workers.

However, due to factors such as the drop in the country’s birth rate and the increase in life expectancy, this system presented problems for maintaining itself in future, explained Martínez.

This implied that fewer people would contribute to the pension system, generating the risk that future generations would be unable to retire with a good quality of life, continued Lastiri.

“This meant that younger generations could face big financial difficulties when they retired, as they would receive much lower pensions than their predecessors were accustomed to,” remarked Lastiri.

So, from July 1, 1997, it was established that all employees registered with the Mexican Social Security Institute (IMSS) after that date would have individual retirement funds.

The academics mentioned that these funds consisted of an Afore account for depositing their contributions and those of their employers for their retirement during the years they were working.

“The return percentages of your Afore will vary depending on the SIEFORE you belong to" .- Armando Martínez.

Specialized Retirement Fund Investment Companies (SIEFORE) are investment funds in which Afores invest the resources of workers to generate returns.

They are currently managed in a generational way, which means that workers are grouped depending on the year they were born into a SIEFORE that will be working on their investments for their entire lives.

“The return percentages of your Afore will vary depending on the SIEFORE you belong to, as investments will be modified according to the stage of life you are at,” remarked Martínez.

You can consult which SIEFORE group you belong to and your return HERE. 

Besides reviewing which generational group you belong to, Martínez and Lastiri give the following tips on how to manage your Afore better:

Martínez said that the first step is knowing which Afore you are registered with. Both academics mentioned that although workers are assigned one as soon as they have been registered in the Social Security system, most don’t know which one they’re registered with.

“This is important because each Afore manages different rates of return, and the one we’re registered with is not always the one that’s best for us,” explained Lastiri.

The National Commission for the Retirement Savings System (CONSAR) mentions three ways to consult your Afore:

• Over the phone: call SARTEL toll-free on 55 1328-5000
• Via the Internet: go to http://www.e-sar.com.mx/www.aforeweb.com.mx and enter the Localiza tu Afore section.
• Through the AforeMóvil app

Finally, Martínez said that even if you change jobs or start working for yourself, your individual Afore account is maintained and you can continue making contributions to it.

Once you have located your Afore, the academics mentioned that there are different ways of switching if you wish to do so.

Lastiri advised people to perform a careful analysis before switching their Afore, as this could imply associated costs and affect long-term returns.

“Although you can switch your Afore once a year in the app, my recommendation is not to do so often if you want your Afore to generate greater income,” explained the professor.

CONSAR explains that there are two ways of switching your Afore:

• Performing the procedures directly with the Afore of your choice
• Through the AforeMóvil app

What’s more, CONSAR says that you need to have certain documents to perform the procedure, such as the transfer application, net return documents, or an electronic record, depending on the method to be used.

Lastiri recommends always monitoring the interest generated by your contributions. You can do this through the account statement that Afores send every year.

“Review your account’s rate of return. Don’t forget that there can be negative returns, and your contributions will lose money with these,” said the professor.

She explained that you should always compare your Afore’s rate of return against previous years to analyze how muchyour retirement fund is growing or if it’s shrinking.

Moreover, Martínez mentioned that workers have the option of making voluntary contributions to their individual account. These additional contributions enable them to increase the amount in the retirement fund and obtain greater benefits in future.

Professor Lastiri explains that another important issue is always designating a beneficiary of the Afore account.

Lastiri said that Afores lapse after ten years of inactivity in Mexico, which means that you could lose the funds if you don’t keep your record of beneficiaries up to date.

She also compared this situation to that of the United States, where active efforts are made to locate beneficiaries in the event of death, which does not happen in the Mexican system.

Besides Afores, there are other options for saving for retirement, such as private pension plans or investments.

Lastiri stressed the need for personal financial planning. She emphasized that Afores have low rates of returncompared with other investment methods such as CETES, and their fees can affect savings even more.

Lastiri suggests it is essential to explore other investment opportunities that offer more attractive rates of return in the long term.

“The key lies in creating a strategy that adapts to each individual’s age and personality, seeking investment alternatives that generate income and wealth constantly,” she explained.

Martínez and Lastiri concluded by saying that although Afores are a tool provided as legal benefit that may help support retirement, it’s important for people not to rely solely on these savings.

They recommend always looking for more options to invest, always bearing in mind each person’s financial profile.

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