non-contributory pensions in Mexico

It is difficult to keep up with events in Mexico. The pension scene changes almost daily.

The extension of the rural 70+ scheme to urban areas is now official, and was communicated to the nation last Tuesday (17 January) by President Felipe Calderón, speaking in Naucalpan, a city located just northwest of Mexico City in adjoining State of Mexico which – in sharp contrast to Mexico City – offers no pensions to its elderly citizens. Anyone who receives an earnings-related pension from the social security system (IMSS) or from the civil service (ISSSTE) is not eligible for an urban 70+ pension. Urban pension benefits are identical to those of rural pensions – $500 pesos (US$37) a month – but urban beneficiaries will receive bi-monthly credits on a debit card, whereas rural beneficiaries receive benefits in cash or direct deposits.

Will rural pensions now be pension-tested as well? This is not clear. The government’s 70+ webpage continues to list only three requirements for eligibility:

a) Be at least 70 years old
b) Reside in a community with 30,000 inhabitants or less
c) Agree to suspend any benefit the applicant might receive from the [federal] Human Development Programme Oportunidades

The webpage offers no information for applicants who reside in communities larger than 30,000 inhabitants. For a government that prides itself on transparency, this lack of information is troubling.

I fear the worse. The conservative PAN (National Action Party) that controls the executive branch of the federal government has opposed non-contributory pensions in general, and universal pensions in particular. The former Mayor of Mexico City, Andrés Manuel López Obrador (born 1953), initiated universal pensions in 2001, then ran for President of Mexico in the federal elections of 2006. He lost by one percentage point to the PAN candidate, Felipe Calderón (born 1962), in a contested vote. AMLO promised, if elected, to extend Mexico City’s universal pension to all Mexico. Calderón, backed by the then incumbent President Vicente Fox (also from the PAN), repeatedly and strongly voiced his disagreement with AMLO’s pension manifesto. It was AMLO’s political allies in Congress who initiated – with no support from President Calderón – legislation for the rural 70+ pension scheme. Have the views of Felipe Calderón and his party changed so radically? I sincerely hope so. But I doubt it. This might well be strategic behaviour in an election year. This is why I fear the worse. (Mexican presidential elections take place every six years, and the incumbent is not allowed to run for re-election.)

At a minimum, I have no doubt that the government will eventually subject pensions in rural areas to the same tests as pensions in urban communities, although they may wait until after the 2012 elections to do this. It defies logic to think that rural applicants will escape a pensions test to which urban residents are subjected.

What will happen to state programmes when the federal 70+ programme commences in urban areas? Will pensioners in states with generous benefits be forced to shift to the federal scheme, with reduced benefits? This question is especially important for Mexico City, where universal pension benefits are $897 pesos a month, almost double the $500 pesos of the 70+ scheme. Moreover, the age of eligibility in Mexico City fell in 2009 from 70 to 68 years, and benefits are indexed to consumer prices. In the case of 70+, both benefits and the age of eligibility have been frozen since 2007. This is not a prediction, but one possibility is that the federal government might allow state governments to top up the federal benefit, and/or provide full benefits to seniors younger than 70 years.

A universal minimum pension for all Mexicans, with allowance for state top-ups and early pensions, would introduce only modest complexity into the 70+ scheme, with a simple pension test that does not stigmatise beneficiaries.

My fear is that the federal government will not stop with a pensions-test, but will instead move on either to geographic targeting or to more stringent means-tests. Geographic targeting is very crude. Some districts of urban Mexico contain both mansions and shacks, so there will be inevitable errors of inclusion and exclusion. Individualised means tests have even more problems, not least of which is more opportunity for corruption, for payment of ‘mordidas’ (bribes) to officials so that they will certify an applicant as poor.

The information so far is mixed, so it is difficult to know whether tests of eligibility will go beyond age, residence and income from other pensions. Officials from the federal ministry of social development (SEDESOL) in Chihuahua and Guanajuato told journalists that the their goal is to ensure that all residents aged 70 years and older, regardless of socioeconomic status, have a pension. The position of SEDESOL officials in Chiapas and Yucatan, in contrast, is that the 70+ programme will be targeted to those living in poverty in urban areas, but they never define what they mean by “poverty”. The news report from Yucatan is especially detailed. The representative of SEDESOL in Yucatan explained that applicants with no other pension income, who meet age and residence requirements, will be invited to provide the information required for a socioeconomic information card (Cédula Única de Información Socioeconómica). This procedure takes about 35 minutes. Those whose applications are approved can expect the bi-monthly pension to commence in May/June of this year.

The mixed information and lack of guidelines for this initiative is worrisome. So much for the transparency and clear rules promised by President Calderón!


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