The actuary in public policy: technical notes

Almost every public decision on pensions, health or insurance is a decision about uncertain cash flows that stretch over decades. What a universal pension will cost when the generations born in the 1970s retire, whether a fund will be enough for the top-ups it promises, how heavily the payroll of retirees under a closed plan weighs on the budget: these are actuarial questions before they are political ones. The answer depends on demographic, financial and behavioral assumptions that should be made explicit so that the public debate takes place over the same numbers.

Several actuarial associations have institutionalized this contribution. Australia's Actuaries Institute publishes Dialogue Papers as part of its thought leadership program, together with public policy positions and responses to government consultations. Its stated principles are that measures should promote public well-being, consider equity effects, be evidence-based and support effectively regulated systems. A recent example is Bridging the Longevity Divide, which found a gap of 11.5 years in life expectancy at age 60 between men in the most and least advantaged socioeconomic profiles analyzed, and 9.1 years among women, with implications for lifetime income products. Another, It's Time: Here's How to Turn Superannuation into a Retirement Income System, proposes a three-part reform package so that the retirement savings system fulfills its purpose of providing income in retirement.

In the United Kingdom, the Institute and Faculty of Actuaries (IFoA) brings its policy and public affairs work together in its Insight section: campaigns recommending specific changes to legislation and regulation, consultation responses and analysis in three broad areas (the 100-year life, the future of insurance and sustainability), plus the think thought leadership series. The IFoA describes this work as a contribution of informed, impartial analysis and links it to its duty to promote the public interest under its Royal Charter. The International Actuarial Association (IAA) maintains a register of Public Submissions: technical comments to bodies such as the IAIS, the IASB and the ISSB, the IOPS, the OECD and the IPSASB.

In Mexico, actuaries already take part in public finance by legal mandate. The Ley del Seguro Social (Social Security Law) requires the IMSS (Mexican Social Security Institute) to deliver each year, no later than June 30, an audited report on its financial and actuarial position to the Executive and to Congress (article 273). The Ley de Disciplina Financiera (Financial Discipline Law) requires state revenue and budget bills to include an actuarial study of the pensions of state employees, updated at least every three years (article 5, section V). What is often missing is not the calculation but its translation into language that allows options to be compared. That is the purpose of these notes, in line with the profession's research work and standards of practice.

The IMSS insures more than 31 million people and is at the same time the employer of 550,187 workers at year-end 2025. As an employer, it grants its staff the Régimen de Jubilaciones y Pensiones (RJP, the IMSS staff retirement and pension plan), agreed with the SNTSS (the national union of IMSS workers) on October 7, 1966, which supplements the pensions under the Social Security Law. The plan is closed: employees hired between October 16, 2005 and July 31, 2008 are covered by an agreement with its own fund, those hired afterwards under the 2008 agreement have individual accounts with 15% contributions, and hires since 2012 are governed by Section A of article 123 of the Constitution, with no pension liability for the IMSS as employer.

At year-end 2025 the RJP was paying 365,354 retirees and pensioners, 1.9% more than in 2024, at a payroll cost of 189,459 million pesos, 7.7% more than the previous year. Retirement for years of service had an average net cost of 34,683 pesos per person per month. On the active side, 82,393 workers remained in the plan, equivalent to 23% of pensioners, a ratio the IMSS estimates at 20% at year-end 2026.

The IMSS annual report to the Federal Executive and Congress on its financial position and risks for 2025-2026 presents three measures of the same liability, and confusing them is the most common source of contradictory figures. The present value of total obligations (PVTO) of the RJP, 3.30 trillion pesos, adds up all future payments to current retirees and to active members of the plan; of that amount, 0.98 trillion corresponds to the portion equivalent to the Social Security Law pension, borne by the IMSS as insurer, and 2.36 trillion to the supplementary pensions, borne by the IMSS as employer. The defined benefit obligation (DBO), 2.4 trillion for the entire employee benefit liability, recognizes only the portion accrued to date under the projected unit credit method of NIF D-3. Within it, accrued obligations for supplementary benefits total 2.30 trillion, 6.4% of 2025 GDP, and 84% relates to people already retired or receiving a pension.

Because the plan is closed and most of the liability relates to retirees, the control variable is the annual cash flow, not the present value. Total RJP expenditure rises to a peak of 248,693 million 2025 pesos in 2036; the portion borne by the IMSS as employer peaks at 174,705 million in 2035; and the number of retirees and pensioners reaches 403,654 in 2033. After those years the liability gradually runs off. Sensitivity to the discount rate is high: between 2024 and 2025 the rate fell from 11.14% to 9.85% and the present value of the employee benefit obligations went from 2.06 to 2.51 trillion pesos, with no change in the number of people entitled.

On April 30, 2024 the DOF (Official Gazette) published amendments to the Social Security Law, the INFONAVIT Law, the ISSSTE Law, the Retirement Savings Systems Law and other laws to create the Fondo de Pensiones para el Bienestar (Pension Fund for Well-being), followed on May 1, 2024 by the decree establishing it as a public trust, with the SHCP (Ministry of Finance) as settlor and Banco de México as trustee. Its purpose is to pay a top-up to people who turn 65 with a pension equal to or below the average monthly salary registered with the IMSS in 2023 (16,777.68 pesos), a figure updated each year with estimated inflation; in 2026 the cap is 17,885.85 pesos. It applies to people who began contributing to the IMSS on or after July 1, 1997 or who are in the ISSSTE individual account regime, and it is subject to the sufficiency of the fund.

Its assets come from several sources: balances in the retirement, early old age and old age subaccounts and housing subaccounts not claimed by their holders on reaching age 70 (IMSS) or 75 (ISSSTE), which can be claimed at any time; 75% of the net proceeds from customs and tax-related asset sales by the INDEP (the federal agency that disposes of seized assets); 25% of the net profits of state-owned entities under the Ministries of National Defense and of the Navy; the proceeds from the liquidation of Financiera Nacional de Desarrollo; savings from eliminating bodies with duplicate functions; the sale of ISSSTE real estate in 2024 and 2025; and the fund's own investment returns.

Compliance audit 336 by the ASF (Federal Audit Office) of the 2024 Cuenta Pública (federal public accounts) details that year's revenue: 24,022.5 million pesos transferred by the IMSS, 6,135.0 million by INFONAVIT, 2,676.4 million by the ISSSTE and 12,000.0 million from the INDEP through the SHCP. In the same year 1,743.5 million was returned to account holders who claimed their balances and top-ups of 50.0 million were paid. According to federal government figures reported in the press in September 2026, by June 2026 a total of 5,940 million pesos had been returned to 188,043 people.

The top-up raises the pension to the final salary, subject to a cap. Few people receive it today because the generation that began contributing after July 1997 is only beginning to reach age 65; their number will grow through the 2030s and 2040s as cohorts with more years in the individual account regime retire. The fund, by contrast, received much of its resources at once, from the initial transfer of dormant accounts. Sufficiency therefore depends on comparing a pool of assets with irregular inflows, subject to refunds, against the present value of top-ups that grow over time.

Pension systems for employees of states, municipalities and public universities are heterogeneous. Some state governments have their own defined benefit institutes; others enroll their staff in the ISSSTE or the IMSS. The Government of Quintana Roo, for example, reports in its actuarial studies form that the requirement does not apply to it because its employees receive their pensions through the ISSSTE. Public state universities show a mix of IMSS or ISSSTE affiliation, state systems, supplementary schemes, their own plans and cases of double pensions.

The Ley de Disciplina Financiera (Financial Discipline Law for States and Municipalities), published in 2016, requires state revenue and budget bills to include an actuarial study of the pensions of state employees, updated at least every three years, covering the covered population, average age, benefit features, reserve amounts, sufficiency period and actuarial balance at present value (article 5, section V). For municipalities the minimum update is every four years (article 18, section IV). The law refers to the forms issued by the Consejo Nacional de Armonización Contable (National Accounting Harmonization Council, CONAC, an acronym it shares with the Colegio Nacional de Actuarios, although they are separate bodies), and the compliance forms include the "Informe sobre Estudios Actuariales" (actuarial studies report), with standardized fields: type of system, contributions as a percentage of salary, present value of obligations and of contributions for current and future generations, actuarial deficit or surplus, sufficiency period, year of fund depletion and rate of return.

For universities, a May 2023 document by ANUIES (National Association of Universities and Higher Education Institutions) notes that actuarial studies begun in 2001 found that the original systems were not financially viable. Between 2002 and 2018, the SEP (Ministry of Public Education) and the Chamber of Deputies operated a fund to support structural reforms at public state universities (later budget line U081), which distributed 14,486.73 million pesos in exchange for irrevocable reforms to their pension systems; according to SEP monitoring, practically all schemes were reformed. Since 2019 the budget line has had no funding. The same document cites the Dirección General de Educación Superior Universitaria (Directorate General of University Higher Education), which identified five universities with very severe financial problems: the Universidad Autónoma del Estado de Morelos, the Universidad Michoacana de San Nicolás de Hidalgo, the Universidad Autónoma de Nayarit, the Universidad Juárez del Estado de Durango and the Universidad Autónoma de Zacatecas. As a reference for the cumulative magnitude, in 2015 the ASF estimated a deficit of 227 billion pesos at public state universities, mainly due to pensions.

The study required by law is an actuarial balance: it compares the reserve and the present value of future contributions with the present value of obligations, separating the current generation (today's active members and pensioners) from future generations (those who will join). The sufficiency period indicates the year in which the reserve runs out if the rules do not change; from that year on, pensions are paid out of the government's or university's current budget. The general average premium is the level contribution, as a percentage of payroll, that would bring the deficit to zero.

Since the amendment published in the DOF on December 2, 2024, article 4 of the Constitution provides that older adults over sixty-five are entitled to receive a non-contributory pension from the State under the terms set by law. The 2026 Operating Rules (Reglas de Operación), published in the DOF on February 12, 2026, set the amount at 3,200 pesos per month paid every two months, that is, 6,400 pesos per two-month period, with updates starting in 2027. For reference, when the universal pension was created in 2019 the benefit was 1,275 pesos per month.

The 2026 Federal Expenditure Budget (PEF) allocates 471,802.9 million pesos to the program (code S176) in its Annex 14, on resources for vulnerable groups; Annex 13, on spending for equality between women and men, identifies 261,776.1 million of the same program. The Chamber of Deputies' Center for Public Finance Studies (CEFP) reports that spending on non-contributory pensions rose from 54,941 million pesos in 2018 to 485,510 million in 2024, and estimates that the program would require 43.0% more resources by 2030.

In actuarial terms, a flat-rate universal pension is a life annuity with no reserve: each year it is paid to survivors aged 65 and over out of that year's taxes. Its cost as a share of GDP depends on three rates: growth of the population aged 65 and over, real growth of the benefit amount and real growth of the economy. Between 2026 and 2030 the population aged 65 and over grows about 4.2% a year according to CONAPO, and between 2030 and 2050 about 3.2%. If the amount is only adjusted for inflation and GDP grows 2% in real terms, the relative cost rises as long as aging outpaces the economy. Mortality improvement enters through the number of beneficiaries, a topic developed in the guide on longevity risk.

With the preloaded values, the 2026 cost comes to 468.5 billion pesos, 1.21% of GDP, close to the 471.8 billion in Annex 14 of the 2026 PEF. With the amount held constant in real terms and GDP growing 2% a year, the cost reaches 1.65% of GDP in 2050, peaks at close to 1.7% around 2059 and declines slightly afterwards, when the population aged 65 and over grows more slowly than GDP. Real growth in the amount of 1% a year takes the 2050 cost to about 2.1% of GDP. The projector is deliberately simple: it does not model changes in coverage, in mortality relative to the CONAPO projection or in productivity.

The protection gap is the difference between the economic losses faced by households, businesses and government and the portion of those losses that is insured. It cannot be observed directly, but its symptoms can: low premiums relative to the size of the economy, and losses from disasters or deaths that are absorbed by families or the public budget.

According to OECD insurance statistics, gross premiums in Mexico in 2024 were equivalent to 2.76% of GDP: 1.22% in life and 1.54% in non-life. The OECD average was 9.44%. In the region, Chile recorded 4.43%, Brazil 3.44%, Colombia 3.29%, Costa Rica 2.40%, Argentina 2.23% and Peru 2.04%. Density, premiums per capita, was 386.5 dollars in Mexico against 4,640.6 dollars for the OECD average. The share of life in total premiums, 43.4% in Mexico and 45.0% in the OECD, is similar: the difference lies in the level, not the mix.

The gap is estimated by line of business. In life, each household's protection need (the present value of the income dependents would lose if the earner dies, less the savings and social security benefits that would replace it) is compared with existing sums insured. In catastrophic risks, the modeled or historical economic loss is compared with the insured loss. In health, out-of-pocket spending is the usual indicator. In all three cases the result is sensitive to assumptions such as the discount rate, the income replacement rate or the return period of the event.