Evaluating Administrative Costs in Mexico’s AFORES Pension System

Olivia S. Mitchell

Abstract — Mexico has recently mandated a national defined contribution pension program known as the AFORES system, modeled on but somewhat different from the privatization models implemented elsewhere in Latin America. This study examines evidence on administrative costs of the AFORES experienced during the program’s start-up phase. We explore interactions between program design and program expenses and evaluate likely developments that could alter administrative costs in the future. We find that administrative expenses of the Mexican AFORES will probably change in next few years: they could fall if the program grows quickly to produce scale economies and start-up costs are amortized rapidly, but they may rise if services and reporting requirements are expanded. Policy recommendations emphasize cost reduction but not at the expense of pension plan performance.