universal health care and universal pensions

This week’s Economist magazine contains a superb leader, “Universal health care, worldwide, is within reach“. Reading it, it occurred to me that many of the points in it apply equally to universal basic income for older persons.

In a major section of the leader, titled “How the other half dies”, I did little more than substitute “universal basic pensions” for “universal basic health care”, and came up with the following essay.

How older persons live

Universal basic pensions are sensible in the way that, say, universal basic education is sensible—because they yield benefits to society as well as to individuals. In some quarters the very idea leads to a dangerous elevation of the blood pressure, because it suggests paternalism, coercion or worse. There is no hiding that universal pension schemes require the rich to subsidise the poor, the young to subsidise the old and the healthy to underwrite the sick who are unable to work. And universal schemes must have a way of forcing people to pay, through taxes, say, or by mandating that they save for their own retirement.

But there is a principled, liberal case for universal pensions. An old age pension is something everyone can reasonably be assumed to want in order to realise their full individual potential. Universal pensions are a way of providing it that is pro-growth. According to several studies, confidence about income in old age makes people more likely to accept risk, more likely to study and set up their own businesses.

Universal basic pensions are also affordable. A country need not wait to be rich before it can have comprehensive, if rudimentary, pensions. There is already a lot of public spending on pensions in poor countries, but it is often inefficient. In India and Nigeria, for example, most public spending on pensions – including tax expenditure – goes to upper income groups. More services could be provided if that money—and the risk of older persons falling into poverty—were pooled.

And universal basic pensions are practical. They do not have to mean big government. Private insurers and providers, as well as contributory social insurance schemes, can still play an important role.

Indeed such a practical approach is just what the low-cost revolution needs. Take, for instance, the design of retirement pension schemes. Many countries start by making a small group of people eligible for large benefits, in the expectation that other groups will be added later. (Civil servants are, mysteriously, common beneficiaries.) This is not only unfair and inefficient, but also risks creating a constituency opposed to extending benefits to others. The better option is to cover as many people as possible, even if the services available are sparse, as under Mexico’s ’65 y mas’ programme.

Small amounts of spending can go a long way.

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