Observation (CEACR) - adopted 2007, published 97th ILC session (2008)

Social Security (Minimum Standards) Convention, 1952 (No. 102) - Mexico (Ratification: 1961)

The Committee takes note of the detailed report sent by the Government. It notes the Government’s information on the application of paragraph 1, Article 10, Part II (Medical care), of the Convention. The Committee also notes the communications from the following workers’ organizations: the Trade Union of Workers of the National Autonomous University of Mexico; the National Trade Union of Workers of the Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food; the Single Trade Union of Workers of the Nuclear Industry; the Independent Trade Union of Workers of the Autonomous Metropolitan University; the National Union of Education Workers (14 sections); the Trade Union of the National Council for Culture and the Arts; the Administrative Union of the Autonomous University of San Luis Potosí. The above organizations allege breaches of Convention No. 102 arising from the adoption of a new Act on the State Workers’ Social Security and Services Institute (ISSSTE). The Committee also takes note of the detailed information communicated by the Government on 27 November 2007, in reply to the comments made by the trade unions. It will examine the abovementioned communications at its next session.

State workers’ scheme (ISSSTE)

The Committee notes the entry into force of the new ISSSTE Act, published in the Diario Oficial de la federación (Official Journal) of 31 March 2007. Like the 1997 Social Security Act, the new ISSSTE Act associates the private sector in the achievement of the objectives pursued by social security. It groups the 21 branches of insurance, services and benefits contemplated in the old Act into four branches similar to those established in the 1997 Social Security Act and a section on social and cultural services: retirement, unemployment among older workers and old age; invalidity and life; occupational risks, and health. The new Act introduces major reforms, particularly in pensions. An individual capitalization system (defined contributions) with a personal account for every member of the scheme replaces the former pay-as-you-go system (defined benefits). Workers affiliated to the ISSSTE are now required to have an individual account in the PENSIONISSSTE or, if they so wish, in a pension fund management company (AFORES). Individual accounts are funded by contributions from the worker and from state departments and bodies. Under the Social Security Act, the AFORES are responsible for investing the funds deposited in the individual accounts through investment companies specializing in the placement of pension funds (SIEFORES). The latter also need authorization from the Commission on the Retirement Savings System, which is likewise responsible for supervising their activities and those of the AFORES. The companies charge commissions, which are deducted from the workers’ personal accounts. Upon retirement, workers may convert the balance of their individual accounts into a pension in the form either of a life annuity or of programmed withdrawals. The resources accumulated in the personal accounts are also used to finance invalidity and survivors’ benefits. In certain circumstances, workers may make withdrawals from their personal accounts for specific purposes (marriage, unemployment, etc.). The State guarantees a minimum pension equal to 3,034 pesos and 20 centavos (3,034.20) (section 92, ISSSTE Act).

Under the new retirement pension system, workers in activity may opt to remain in the old, defined-benefit system or to switch immediately to the new, defined-contribution system, while workers entering the labour market automatically join the new system. The new ISSSTE Act also provides for the transfer of savings accumulated under the ISSSTE Act or the Social Security Act. For workers opting to switch to the new system and workers entering the labour market, the new ISSSTE Act provides for the transfer of accumulated savings between the IMSS and the ISSSTE. The Committee asks the Government in its next report to provide detailed information, including statistics, on the extent to which the new legislation gives effect to each provision of the Convention, in accordance with the report form on the Convention. The Government is also asked to provide information on the procedure that applies in respect of workers opting to remain in the old system who have both acquired rights and savings in the IMSS. The Committee hopes that the next report will also contain information on the measures adopted to give effect to the following provisions of the Convention.

Part III. Sickness benefit. Articles 17 and 18 of the Convention. The Committee notes that, under section 37 of the new Act, workers prevented by sickness from carrying out their jobs shall be entitled to leave with pay or half pay from the department or body for which they work, corresponding to length of service. Under this provision, depending on length of service (from less than one to over ten years) they may be granted sick leave for non-occupational sickness, for periods ranging from 15 days with full pay and 15 days with half pay, to 60 days with full pay and 60 days with half pay. Upon expiry of the leave with half pay, they are entitled to a cash subsidy equal to 50 per cent of the basic wage at the onset of the incapacity. Since, under section 17 of the ISSSTE Act, the basic wage is taken to calculate contributions, the lower limit being the minimum wage and the upper limit ten times the minimum wage, the Committee asks the Government to indicate the components of the basic wage.

Part V. Old-age benefit. Articles 28, 29 and 30 of the Convention. (a) The Committee recalls that, under the provisions of the Convention, read in conjunction with Part XI (Standards to be complied with by periodical payments), the level of the old-age benefit must attain 40 per cent of the reference wage for a standard beneficiary who has completed a qualifying period consisting either of 30 years of contributions or employment or 20 years of residence. This level must be guaranteed throughout the contingency, regardless of the type of pension chosen (life annuity or programmed retirement). The Committee observes that, for persons fulfilling the requirements for eligibility to the old-age pension established in the legislation, the amount of this pension appears not to be determined in advance but to depend on the capital saved in the workers’ personal accounts, particularly the return thereon. However, pursuant to section 92 of the ISSSTE Act, for workers meeting the requirements on age and qualifying period laid down in section 89 of the Act, the State provides a “guaranteed pension” in a monthly amount of 3,034 pesos and 20 centavos (3,034.20), which will be updated once a year, in February, on the basis of the yearly change in the National Consumer Price Index. In these circumstances, the Committee expresses the hope that in its next report the Government will provide the statistical information required in the report form under Article 66 of the Convention, to enable the Committee to ascertain whether, in practice, the minimum amount of the old-age pension attains the percentage prescribed by the Convention.

(b) The Committee requests the Government to indicate how it ensures that effect is given to Article 30 (throughout the contingency) in respect of the “programmed retirement” scheme provided for in section 159 of the Social Security Act. Please indicate in particular whether the beneficiary is entitled to payment of the “guaranteed pension” established in section 91(II) of the ISSSTE Act when the capital saved in the individual account is exhausted.

(c) The Committee notes that, under section 89 of the ISSSTE Act, workers are entitled to an old-age pension when they reach the age of 65 and have completed a minimum qualifying period of 25 years of contributions. The Committee asks the Government to indicate in its next report how effect is given to Article 29, paragraph 2(a), of the Convention, under which a reduced old-age pension must be secured as a minimum for a protected person who has completed, prior to the contingency, a qualifying period of 15 years of contributions or employment.

Part VI. Employment injury benefit.  Articles 36 and 38. The Committee notes that, according to section 62(III) of the ISSSTE Act, in the event of total incapacity, the worker shall receive a pension until the age of 65 years by taking out pension insurance that pays him income equal to the basic wage he received at the onset of the risk, regardless of his length of service (section 63 of the Act). Upon expiry of the pension insurance, the worker will receive an old-age pension if he meets the corresponding requirements, otherwise he will receive the guaranteed pension. The Committee takes note of this information. It points out to the Government that, according to the Convention, the benefit for permanent total incapacity (Article 36) shall be a periodical payment that must be granted throughout the contingency (Article 38). Unlike Article 58 (Part IX. Invalidity benefit), Article 38 of the Convention does not allow the benefit for permanent total incapacity to be replaced by old-age benefit. The Committee points out that replacement of permanent incapacity benefit deriving from an occupational risk by an old-age pension would be compatible with the Convention only if the amount of the latter is at least equal to that of the former, and provided that it is not subject to any qualification requirement. It accordingly asks the Government to indicate the measures it has in mind to ensure compliance with the Convention.

Part XI. Standards to be complied with by periodical payments. Employment injury benefit, Article 36, invalidity benefit, Articles 56 and 57, and survivors’ benefit, Articles 62 and 63. The Committee would be grateful if the Government would provide all statistical information relating to calculation of the benefits referred to under Article 65 (Titles I, II and IV).

The Committee notes that, according to section 121 of the Social Security Act, the invalidity pension for workers meeting the qualification requirements in section 118 is equal to a basic amount of 35 per cent of the average basic wage of the year immediately preceding the date of the onset of the workers’ invalidity. The amount shall not be less than the pension established in section 170 of the Social Security Act at the date of entry into force of the ISSSTE Act and it shall be updated annually, in February, on the basis of the updated adjustment of the Consumer Price Index. As to the amount of the survivors’ benefit, the members of the insured person’s family, in the order laid down in section 131 of the ISSSTE Act, are entitled to a pension equal to 100 per cent of the pension that would have been payable to the worker or of the pension he was receiving. The Committee reminds the Government that, under the abovementioned provisions of the Convention, read together with the provisions of Part XI (Standards to be complied with by periodical payments), invalidity benefit, including the family allowances paid to the standard beneficiary (man with wife and two children) must attain at least 40 per cent of the former earnings and the family allowances paid to the beneficiary when he was in activity. As to the amount of the widow’s pension, it must likewise attain, for a standard beneficiary (widow with two children), 40 per cent of the previous earnings of the breadwinner (including the family allowances paid both during employment and during the contingency). In view of the fact that, under section 121 of the ISSSTE Act, invalidity benefit may not be less than the “guaranteed pension” established in section 170 of the Social Security Act, equal to the general minimum wage for the Federal District, the Government may deem it appropriate to avail itself of the provisions of Article 66 of the Convention. The Committee asks the Government in its next report to provide the statistical information requested by the report form under this provision of the Convention (Titles I, II and IV). It also asks the Government to indicate whether the guaranteed pension also applies to the pension arising out of death and, if so, under which provisions.

Part XIII. Common provisions. Administration and oversight of the social security system. Articles 71 and 72. The Committee notes that, according to section 14 of the ISSSTE Act, the Institute shall compile and classify information on insured persons with a view to drawing up pay scales, working out length of services averages, drawing up mortality and morbidity tables and, in general, compiling the necessary statistics and actuarial calculations to achieve and maintain the financial equilibrium of the resources and to comply adequately and efficiently with the insurance schemes, benefits and services that it is required to administer by law. The Committee also notes that, under section 5 of the ISSSTE Act, the ISSSTE is responsible for the management of the insurance schemes, benefits and services established in the law and of the Housing Fund, the PENSIONISSSTE, its delegations and other decentralized bodies. The Committee deems it appropriate to stress that there needs to be an overall actuarial evaluation of the entire social security system, which should henceforth include the part corresponding to the state workers’ scheme. It asks the Government to state whether the necessary actuarial studies and evaluations have been carried out to ensure the financial equilibrium of the new system and, if so, to provide the results thereof.

General scheme (IMSS)

1. Part II. Medical care. In its previous comments, the Committee noted that, pursuant to section 89 of the Social Security Act, the Mexican Social Security Institute (IMSS) may provide the medical care for which it is responsible according to the three following procedures: (i) directly, through its own personnel and facilities; (ii) indirectly, by means of agreements with other public or private care providers; or (iii) indirectly, through the conclusion of agreements with enterprises that have their own medical services. The Government provides information on the content of the agreements used by the IMSS for the provision of medical care, and indicates that the provision of medical care and the payment of subsidies for temporary incapacity to work, which under the terms of the agreement is the responsibility of the enterprise, shall be subject to inspection and monitoring by the IMSS, regardless of the obligation they both have. Where the Institute finds defects in the provision of benefits by the enterprise, and these are confirmed as a result of the relevant investigations, it shall order and execute suitable measures to remedy them under the terms of the Social Security Act and its applicable regulations. The Government adds that since at present there are no agreements on the transfer of responsibility for care provision with reimbursement of contributions, it has no inspection reports on the matter. The Committee takes note of this information. It asks the Government to keep it informed of any such transfer agreements concluded.

2. Part V. Old-age benefit. Articles 28, 29 and 30 of the Convention. In its previous comments, the Committee noted that for persons who fulfil the qualifying conditions for an old-age pension as set out in the legislation, the amount of the pension is not determined in advance, but depends on the capital saved in the workers’ personal accounts and particularly the return on the capital, which has to be entrusted to the management of a retirement fund management company (AFORE) chosen by the worker. However, under section 170 of the Social Security Act, the State guarantees to workers who fulfil the age conditions and qualifying periods set out in section 162 of the Social Security Act, the provision of a “guaranteed pension”, the amount of which is equal to the general minimum wage for the Federal District. The Government indicates in this connection that the guaranteed pension is increased annually, in February, in accordance with the previous year’s variation in the National Consumer Price Index, the aim being to maintain the purchasing power of the pension in line with trends in the prices of goods and services. The Committee takes note of this information. It also notes the detailed statistics provided in the manner indicated in the report form approved by the Governing Body under Article 66 of the Convention, Titles I and III. The Committee notes that, according to the above information, the amount of the minimum guaranteed pension for 2006 is equal to 42.95 per cent and not 30.82 per cent, as indicated in the precious report, of the wage of an ordinary adult male labourer selected in accordance with the provisions of Article 66 of the Convention. The Committee requests the Government in its next report to provide information on recent increases in amounts of pensions as a consequence of variations in the National Consumer Price Index, together with particulars, for one and the same period, of the cost of living index and the amount of benefits.

3. (a) In its previous comments, the Committee asked the Government to provide information, including statistics and, where appropriate, reports of the supervisory bodies, indicating the average percentage which has in practice been used for the payment of commissions – on both contributions and capital – since the entry into force of the Act. In its report, the Government indicates that, in addition to the tripartite contribution, the Government makes a social contribution, which is a fixed amount for each day worked (2.92 pesos in April 2007) equivalent to roughly 2 per cent of the wage of an average worker. As to the average of commissions paid in practice, which includes commissions on contributions and capital, it has amounted to 1.58 per cent from the start-up of the system to the end of 2006. The highest such percentage – 1.81 per cent – was reached in 2000 and the lowest – 1.38 per cent – in 2006. In percentage terms, the drop in commissions in that period amounted to 24 per cent. The Committee takes note of this information. It notes in particular that the information on receipts from AFORES’ commissions refers to the annual wage bill. The Committee accordingly asks the Government to provide statistical data on the annual receipts from commissions in relation to the amount of the contributions devoted to old-age insurance. It would also be grateful if the Government would provide information on the commissions that an ordinary unskilled worker has had to pay since the system came into operation.

(b) In its previous comments, the Committee noted that the basic capital for the provision of invalidity, life and employment injury pensions which is transferred to the insurance company for the provision of a life annuity, is calculated in accordance with the mortality tables for invalids by age and by sex. It asked the Government to provide information, disaggregated by age and by sex, on the amount of the commissions charged by the AFORES and insurance companies in respect of life annuities. The Government indicates in this regard that insurance companies charge no commission at all on the pension received or the funds accumulated by the pensioner. Under the Mexican pension scheme, commissions are charged by the AFORES while the savings are being accumulated in the personal account, but once the pensioner fulfils the legal requirements for receiving it, the life annuity is bought in the insurance sector. The price of the life annuity includes a surcharge of 1 per cent over the price of the net premium to cover administration and purchase costs, and a 2 per cent surcharge as a safety margin for any deviations in the accident rate. The Government also provides information on the commissions that the AFORES charge both on capital and on contributions. The Committee wishes to point out that this information does not allow an assessment of the accumulated impact of the two commissions for an average unskilled ordinary labourer. It accordingly asks the Government to provide such information. The Committee also notes that the IMSS does not have information disaggregated by age and sex on the amount of the commissions charged by insurance companies (life annuities) during the passive phase. It observes that information of this kind is of the utmost importance in view of the fact that the system is based on periods of saving and periods of use which are reflected in the personal account and which vary considerably depending on the sex and age upon the entry into force of the Act. The Committee therefore hopes that the Government will take all necessary steps to compile and send the information requested.

As to the basic capital transferred to insurance companies, the Government states that, under the Federal Labour Act (LFT), the benefits provided for workers in respect of occupational risks include an obligation on employers to pay an indemnity, which is granted once only (sections 487(IV), 491 and 492). The Social Security Act (LSS) establishes a system of protection in the event of occupational risks which is independent of that in the LFT but which is consistent with it. The LSS provides, in section 53, that an employer which has insured its workers shall be discharged from the obligations laid down in the LFT in respect of liability for occupational risks. Since it establishes more advantageous benefits for the worker and is independent of the system envisaged in the LFT, the funding of the benefits the LSS regulates comes essentially from the contributions of the occupational risk insurance, which are borne by the employer. The pensions for occupational risk are financed in part from the employers’ contributions paid by this insurance and in part on a tripartite basis, i.e. by the employer, the workers and the State, from the resources deposited in the worker’s personal account in the retirement savings system. In the Government’s view, the provisions it cites are consistent with the provisions of the Convention. The Committee takes note of this information. It agrees with the Government that the LFT places an obligation on employers in favour of workers who are victims of occupational risk and that the LSS establishes a system of protection for this purpose. It notes the information supplied in the actuarial evaluation concerning occupational risk insurance, which points out that workers’ savings account for a significant and growing part of the financing, whereas the LFT and the LSS place an obligation solely on the employer. The Committee wishes to stress that, in the actuarial evaluation supplied by the Government, it is indicated that the actuarial techniques recommended by the ILO are applied. The Committee nonetheless observes that, in the information sent by the Government, there are elements of actuarial calculations that have no basis in the current legislation. The Committee reminds the Government that the Convention establishes a duty to ensure, where appropriate, that the necessary actuarial studies and calculations concerning financial equilibrium are made periodically, and that such evaluations must be strictly in keeping with the existing legal provisions. The Committee accordingly reiterates its request for a comprehensive actuarial evaluation encompassing all the branches of insurance covered in the compulsory scheme, including, in particular, retirement, retirement at an advanced age and old-age insurance.

4. In its previous comments, the Committee drew the Government’s attention to Article 29, paragraph 2(a), of the Convention, which provides that a reduced old-age benefit shall be secured at least to a person protected who has completed, prior to the contingency, a qualifying period of 15 years of contributions or employment. The Committee noted that, due to the recent switch to a fully funded system, persons who draw pensions under the retirement, retirement at an advanced age and old-age scheme, have not accumulated sufficient resources in their individual accounts to finance the respective pensions. However, workers who were first insured under the Social Security Act of 12 March 1973 need only 500 weeks of contributions, equivalent to ten years of contributions, to be entitled to this benefit. With regard to workers covered by the new Social Security Act who fulfil the conditions in Article 29, paragraph 2, of the Convention, the Committee observes that the Government merely states that protected persons who have completed, prior to the contingency, a qualifying period of 15 years of contributions or employment, while not having a guaranteed pension, do receive medical benefits from the IMSS and the balance of the funds in their personal accounts. In these circumstances, the Committee can but express once again the hope that the Government will be able to re-examine the situation and indicate the measures adopted or envisaged to secure the provision of a reduced old-age benefit to all persons protected who have completed, prior to the contingency, a qualifying period of 15 years of contributions or employment, in accordance with the provisions of the Convention on this point.

5. Part XIII. Common provisions. (a) (Article 71). Financing The Committee takes note of the information on the financing of benefits. It requests the Government to indicate how effect is given to Article 71, paragraph 2, of the Convention, in respect of employment injury benefits, in so far as the capital accumulated in the individual accounts of workers goes towards the financing of such benefits, under the terms of sections 58 and 64 of the Social Security Act.

The Government indicates that the capital withdrawn from the individual account for the financing of the pension is commensurate with the percentage of the degree of permanent incapacity. For example, where an insured person is evaluated at 30 per cent incapacity, no more than 30 per cent of the total capital in the account at the date of the commencement of the pension will be withdrawn, and such resources serve to finance the pension, with the difference to reach the basic capital required for the provision of the pension being provided by the IMSS through the amount insured. The Government adds that, in view of the relatively brief period since the reform of the pension system, the accumulation of capital in workers’ individual accounts is still relatively insignificant in terms of contributing to the basic capital, with the result that this type of benefit is covered by the amount insured, which comes from employers’ contributions. The Committee requests the Government to indicate the source of the resources under each system considered for each of the Parts of the Convention accepted, with an indication in particular of the rate or the level of the amounts deducted from earnings to finance each system, through either contributions or taxation. As employment injury benefits are covered by a specific insurance, please indicate the level of resources allocated for the financing of such benefits.

(b) Articles 71, paragraph 3, and 72, paragraph 1. Administration and oversight of the social security system. In its previous comments, the Committee stressed the need for an overall actuarial evaluation of the entire social security system. Since the Government has not responded to its previous comments, the Committee can only stress that, in order to ensure application of Article 71, paragraph 3, in full, such an evaluation needs to cover the various pension schemes including and recapitulating at a specific evaluation date, the fixed and contingent liabilities, as well as all the debts and commitments of the State deriving from the old and the new social security systems, encompassing the responsibilities of the IMSS, INFONAVIT and the SAR, including collection, management, supervision and control. The Committee reiterates that the viability and sustainability of the system depend on detailed analysis of the real and foreseeable development of the system as a whole. Indeed, this is the very essence of an actuarial study. Only an overall actuarial evaluation of the entire system will make it possible to estimate the contingent deficits to be underwritten by the State and to make the corresponding forecasts. It accordingly asks the Government to take the necessary measures to give effect to this provision of the Convention and to provide information on progress made in this matter.

6. Communications from representative organizations on the application of the Convention. The Committee noted in its previous comments a communication of 8 March 2005 from the Independent Trade Union of Workers of the National Consumer Protection Office (SITPROFECO), and the Government’s reply of 11 September 2006. It has likewise taken note of the legal action brought by AVON and the court’s decisions. It notes that, on 30 October 2006, AVON and the IMSS reached a settlement out of court. It further notes the inspection visits carried out by the IMSS and the household visit that the IMSS undertook in the course of 2007. The Committee asks the Government to indicate the impact of all the actions by the IMSS to remedy the situation of the AVON workers who were wrongfully disaffiliated from the compulsory social security scheme, providing information on: (a) the settlement reached by the IMSS and AVON; (b) the outcome of the house visit referred to; and (c) the content of the IMSS’s final report of 3 July 2007.

The Committee seeks further information in a request addressed directly to the Government.

[The Government is asked to reply in detail to the present comments in 2008.]