MEXICO CITY, July 31 (Reuters) - Mexicans laid off during the worst economic downturn in decades are raiding their pension pots by record amounts as they scramble to find cash to weather the coronavirus pandemic, part of a wider Latin American scramble to tap funds once strictly set aside for retirement.
Fanned by the crisis, pension withdrawals due to unemployment increased to a record high of 1.856 billion pesos ($82 million) in June, according to data from Mexican pension regulator Consar.
Take 27-year-old Ernesto Hernandez, who urgently needed cash after losing his job selling razor blades and deodorants at a Mexico City supermarket.
“I was very frustrated,” said Hernandez, who is still waiting to collect 8,000 pesos ($355) from his pension. “First, I considered applying for a loan, but they were weekly payments and if I was late with any, I was going to get into more debt.”
The industry expects the withdrawals to accelerate in the coming months, but the country’s main pension fund association told Reuters it expected the sum extracted to be less than 1% of total savings even in the most pessimistic scenario.
Through June Mexico’s pension funds held about 4.3 trillion pesos ($191 billion) in assets.
Private pension funds in Mexico allow workers who have lost their jobs to make a partial withdrawal worth up to three months of their last salary, or 11.5% of their pension savings.
But it takes time: you need to be out of work for at least 46 days before you can apply to tap into your pension.
Retirement coffers are coming under pressure just as the government is putting in place a reform to boost worker pensions.
Mexico has lost over 1.1 million tax-paying jobs and several million more in the informal sector, and the economy shrunk by a record-breaking 17.3% in the second quarter.
Elsewhere in the region, Peru enacted a law allowing people to withdraw up to 25% of their holdings in private pension funds and Chile will allow citizens to withdraw 10% of their pension savings. Brazil is also considering an early withdrawal plan to address the coronavirus crisis.
Regulator Consar expects Mexican withdrawals to increase in the coming months as a backlog of paperwork is processed and more out-of-work Mexicans request a withdrawal.
Even though 44-year-old Maria Huerta only got 5,000 pesos ($222) from her pension, after losing her job at a foreign-owned factory, she says “it’s extra money” she needs to help pay the bills.
“My husband makes very little and it’s not enough for us,” she added. “I have one son in high school, a daughter in middle school and another son who didn’t manage to get into college who is living with us too.”
The ruling MORENA party has proposed making it easier for the unemployed to withdraw funds from their retirement savings during times of crisis.
Lawmakers are due to discuss in September the proposal and a reform to boost average worker pensions by 40%.
The Mexican pension association (Amafore) said even under the worst-case scenario of 2 million people tapping their pensions, withdrawals will reach 26.7 billion pesos or just 0.6% of total worker savings.
$1 = 22.520 Mexican pesos Reporting by Noe Torres; Writing by Anthony Esposito; Editing by Christian Plumb and Marguerita Choy